MADISON, N.J., Oct. 24 /PRNewswire-FirstCall/ -- Quest Diagnostics Incorporated , the nation’s leading provider of diagnostic testing, information and services, announced that for the third quarter ended September 30, 2007, income from continuing operations was $150 million, or $0.77 per diluted share, compared to $164 million, or $0.82 per diluted share in the third quarter of 2006. The third quarter of 2007 includes the results of AmeriPath, Inc., which the company acquired on May 31, 2007.
During the quarter, the company initiated discussions with the government to settle claims associated with its investigation of NID, a test kit manufacturing subsidiary closed in 2006. The investigation was first announced in 2004. The company established a reserve of $51 million in the quarter in connection with these claims. As a result, the company reported a loss from discontinued operations of $52 million or $0.27 per diluted share. (See Footnote 8 to the accompanying tables.)
Third quarter revenues were $1.8 billion, an increase of 11.6% compared to the prior-year level. The acquisition of AmeriPath increased consolidated revenues by 13%. Clinical testing revenues increased by 10.6%, as compared to the prior year. Clinical testing volume, measured by the number of requisitions, decreased 2.4%, and revenue per requisition increased 13.3%. The acquisition of AmeriPath increased clinical testing volume by 5.5% and revenue per requisition by 8.5%. We estimate that the change in status with UnitedHealthcare reduced consolidated revenues by 4.8% and testing volume by 7.3%.
“I am pleased with our continued progress driving revenue growth, margin improvement and strong cash flow. Our focus on operating efficiencies enabled us to quickly return margins to the prior year level, before AmeriPath,” said Surya N. Mohapatra, Ph.D., Chairman and Chief Executive Officer. “During the quarter, we began discussions with the government to settle claims related to NID and we are working diligently to resolve this matter.”
For the third quarter, operating income was $306 million, or 17.3% of revenues, compared to $293 million, or 18.5% of revenues in 2006. This reflects the second consecutive quarter of significant improvement in operating income as a percentage of revenues. The acquisition of AmeriPath reduced operating income as a percentage of revenues by approximately 1.5%.
Bad debt expense as a percentage of revenues was 4.8%. Days sales outstanding were 50 days, as compared to 48 days a year ago. The acquisition of AmeriPath increased bad debt expense as a percentage of revenues by approximately 1% and days sales outstanding by 2 days. Cash flow from operations was $291 million compared to $235 million in 2006. During the quarter, the company repaid $152 million of debt, repurchased $41 million of common stock, and made capital expenditures of $54 million.
Year to Date Performance
For the first nine months of 2007, income from continuing operations was $400 million, or $2.05 per diluted share, compared to $474 million, or $2.37 per diluted share in the prior year. Revenues were $4.9 billion, an increase of 4.6% compared to the prior-year level. The acquisition of AmeriPath increased consolidated revenues by 5.8%. The change in status with UnitedHealthcare reduced consolidated revenues by an estimated 4.7%.
Operating income for the first nine months was $779 million, or 15.8% of revenues, compared to $849 million, or 18.0% of revenues in 2006. The decrease was principally due to the change in status with UnitedHealthcare. Cash from operations was $572 million and was reduced by $57 million of fees and other expenses paid in connection with the acquisition of AmeriPath, and compared to $646 million in 2006. During the first nine months of 2007, the company repurchased $146 million of common stock, and made capital expenditures of $143 million. Since the AmeriPath acquisition, the company reduced debt by $192 million.
Outlook for 2007
For the full year 2007, the company currently expects results from continuing operations as follows: adjusted earnings per diluted share of between $2.84 and $2.91; revenues of $6.6 billion to $6.7 billion, with nearly $500 million from AmeriPath; and operating income of approximately 16% of revenues. Over the same period, the company expects cash from operations to approximate $800 million and capital expenditures of between $210 million and $220 million. These estimates exclude $0.04 per share in total first quarter charges associated with workforce reductions and the expense of in-process research and development, and are before potential additional special charges.
About Quest Diagnostics
Quest Diagnostics is the leading provider of diagnostic testing, information and services that patients and doctors need to make better healthcare decisions. The company offers the broadest access to diagnostic testing services through its national 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 new diagnostic tests and advanced healthcare information technology solutions that help improve patient care. Additional company information is available at www.questdiagnostics.com.
Quest Diagnostics will hold its third quarter conference call on October 24, 2007 at 8:30 A.M. Eastern Time. A simulcast of the call and a replay are available via the Internet at: www.questdiagnostics.com and registered analysts may access the call at: www.streetevents.com. In addition, a replay of the call will be available from 10:30 A.M. on October 24 through 11 P.M. on November 21, 2007 to investors in the U.S. by dialing 866-380-6722. Investors outside the U.S. may dial 203-369-0343. No password is required for either number.
The statements in this press release which are not historical facts or information 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, the competitive environment, changes in government regulations, changing relationships with customers, payers, suppliers and strategic partners and other factors discussed in the Quest Diagnostics 2006 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
CONTACT: Investors, Laure Park, +1-973-520-2900, or Media, Nancy
Fitzsimmons, +1-973-520-2800, both of Quest Diagnostics
Web site: http://www.questdiagnostics.com/
