Quest Diagnostics Inc. Reports Third Quarter 2014 Financial Results

MADISON, N.J., Oct. 23, 2014 /PRNewswire/ --

• Revenues from continuing operations of $1.9 billion, up 6.5% versus prior year
• Adjusted diluted EPS from continuing operations of $1.10, up 7.8% versus prior year
• Reported diluted EPS from continuing operations of $0.88, compared to $2.66 in 2013, which included a net gain of $1.80 per diluted share from asset sales
• Full year 2014 revenues now expected to grow approximately 3.5%, versus 2.5% to 3.5% previously
• Full year 2014 adjusted diluted EPS range narrowed to $4.03 to $4.07, from $4.00 to $4.10 previously

Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of diagnostic information services, announced today that for the third quarter ended September 30, 2014, adjusted income from continuing operations grew to $161 million, or $1.10 per diluted share, compared to $154 million, or $1.02 per diluted share, for 2013.

For the third quarter of 2014, reported income from continuing operations was $129 million, or $0.88 per diluted share.  Income from continuing operations in the third quarter of 2014 was negatively impacted by $32 million after tax, or $0.22 per diluted share, primarily related to restructuring and integration costs associated with recent acquisitions and the company's ongoing efforts to drive operational excellence and simplify the organization.

Third quarter 2013 results were favorably impacted by the gain on the sale of Ibrutinib royalty rights of approximately $300 million after tax, or $1.97 per diluted share.  In addition, reported income from continuing operations was negatively impacted by a loss on sale of the Enterix business of approximately $25 million after tax, or $0.17 per diluted share, as well as by $24 million after tax, or $0.16 per diluted share, of restructuring and integration costs. In the third quarter of 2013, reported income from continuing operations was $403 million, or $2.66 per diluted share.

Revenues from continuing operations were $1.9 billion for the third quarter, 6.5% higher than the prior year. Diagnostic information services revenues increased 7.1% compared to a year ago.  Volume, measured by the number of requisitions, increased 7.8% versus the prior year. Acquisitions contributed approximately 7% to revenues in the quarter and reduced revenue per requisition by approximately 1%. Excluding the mix effect of acquisitions, revenue per requisition was slightly favorable versus the prior year, and improved sequentially from the second quarter of 2014.

For the third quarter of 2014, adjusted operating income from continuing operations grew 3.4% to $304 million, or 16.0% of revenues, compared to $294 million, or 16.5% of revenues, for 2013. For the third quarter of 2014, reported operating income from continuing operations was $256 million, or 13.4% of revenues. For the third quarter of 2013, reported operating income from continuing operations was $689 million, or 38.6% of revenues, and included the net pre-tax gain of $434 million on the asset sales.

Cash provided by operations was $271 million, compared to $186 million in the third quarter of 2013. Capital expenditures were $102 million in the third quarter of 2014.

"Quest Diagnostics grew revenues 6.5% and increased EPS 8% in the third quarter of 2014, as we continued to see improvements in underlying trends in pricing, volume and revenue," said Steve Rusckowski, President and CEO. "We continued to make progress executing our five-point strategy. Earnings benefitted from the Invigorate cost reduction initiative, as well as synergies from integrations of recent acquisitions. I am pleased with the progress we're making, and I look forward to sharing more on our views and outlook at our upcoming Investor Day."

Year-to-Date Performance

Revenues from continuing operations were $5.6 billion for the first nine months of 2014, an increase of 3.0% compared to the prior year. Adjusted income from continuing operations was $440 million, or $3.02 per diluted share, compared to $461 million, or $2.97 per diluted share, in 2013.

On a reported basis, income from continuing operations for the first nine months of 2014 was $366 million, or $2.51 per diluted share.  In 2013, on a reported basis, including the net gain on the asset sales, income from continuing operations was $671 million, or $4.32 per diluted share.

Adjusted operating income from continuing operations for the first nine months of 2014 was $836 million, or 15.1% of revenues, compared to $873 million, or 16.2% of revenues, for 2013. On a reported basis, operating income from continuing operations was $726 million, or 13.1% of revenues, compared to $1.2 billion, or 22.4% of revenues, in 2013. Cash provided by operations was $635 million, compared to $442 million in the first nine months of 2013.

Outlook for 2014

For 2014, the company estimates results from continuing operations, before special items, as follows:

• Revenues expected to increase approximately 3.5% compared to the prior year, versus previous guidance of up 2.5% to 3.5%;
• Adjusted diluted EPS to be between $4.03 and $4.07, versus previous guidance of between $4.00 and $4.10;
• Cash provided by operations to approximate $900 million, unchanged; and
• Capital expenditures to approximate $300 million, unchanged

Note on Non-GAAP Financial Measures

As used in this press release, the term "adjusted" refers to the operating performance measures that exclude restructuring and integration charges, the gain on sale of Ibrutinib royalty rights, the loss on sale of the Enterix business and other charges. Adjusted measures are presented because management believes those measures are useful adjuncts to reported results under accounting principles generally accepted in the United States when comparing results of operations from period to period.  Adjusted measures should not be considered as an alternative to the corresponding measures determined under accounting principles generally accepted in the United States.

The attached tables include reconciliations of adjusted operating performance measures to measures reported under accounting principles generally accepted in the United States.

Conference Call Information

Quest Diagnostics will hold its quarterly conference call to discuss financial results beginning at 8:30 a.m. Eastern Time today. The conference call can also be accessed in listen-only mode by dialing 415-228-4961, passcode 3214469. The company suggests participants dial in approximately 10 minutes before the call.  A replay of the call may be accessed online at www.QuestDiagnostics.com/investor or by phone at 888-566-0486 for domestic callers or 203-369-3611 for international callers. Telephone replays will be available from 10:30 a.m. Eastern Time today until midnight Eastern Time on November 20, 2014.

Anyone listening to the call is encouraged to read the company's periodic reports, on file with the Securities and Exchange Commission, including the discussion of risk factors and historical results of operations and financial condition in those reports.

About Quest Diagnostics

Quest Diagnostics is the world's leading provider of diagnostic information services needed to make better healthcare decisions. The company offers the broadest access to diagnostic testing services through its network of laboratories and patient service centers, and provides interpretive consultation through its extensive medical and scientific staff. Quest Diagnostics is a pioneer in developing innovative diagnostic tests and advanced healthcare information technology solutions that help improve patient care. Additional company information is available at QuestDiagnostics.com.

The statements in this press release which are not historical facts may be forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that they are made and which reflect management's current estimates, projections, expectations or beliefs and which involve risks and uncertainties that could cause actual results and outcomes to be materially different. Risks and uncertainties that may affect the future results of the Company include, but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, changes in government regulations, changing relationships with customers, payers, suppliers or strategic partners and other factors discussed in the Company's most recently filed Annual Report on Form 10-K and in any of the Company's subsequently filed Quarterly Reports on Form 10-Q and  Current Reports on Form 8-K, including those discussed in the "Business," "Risk Factors,"

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