Quest Diagnostics Reports First Quarter 2013 Financial Results

        Quest Diagnostics Reports First Quarter 2013 Financial Results

PR Newswire

MADISON, N.J., April 17, 2013

MADISON, N.J., April 17, 2013 /PRNewswire/ --

  oAdjusted diluted EPS from continuing operations of $0.89, vs. $1.05 in
    2012
  oReported diluted EPS from continuing operations of $0.72, vs. $0.97 in
    2012
  oRevenues from continuing operations of $1.8 billion, 6.4% below prior year
  oFull year 2013 adjusted EPS and cash flow guidance unchanged
  oFull year 2013 revenues now expected to approximate the prior year level

Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of
diagnostic information services, announced today that for the first quarter
ended March 31, 2013, adjusted income from continuing operations was $143
million, or $0.89 per diluted share, compared to $169 million, or $1.05 per
diluted share, for 2012.

For the first quarter of 2013, reported income from continuing operations was
$116 million, or $0.72 per diluted share, compared to $156 million, or $0.97
per diluted share, in 2012. Income from continuing operations in the first
quarter of 2013 was reduced by $45 million, or $0.17 per diluted share,
related to restructuring and integration costs. In the first quarter of 2012,
income from continuing operations was reduced by $0.08 per diluted share
related to restructuring, integration and CEO succession costs.

Revenues from continuing operations were $1.8 billion for the first quarter,
6.4% below the prior year. Diagnostic information services revenues decreased
6.7%. Volume, measured by the number of requisitions, declined 3.4% versus the
prior year, with approximately 2% due to fewer business days and approximately
0.5% due to the comparison with an unseasonably mild winter in 2012. The UMass
acquisition added about 1% to both volume and revenue growth. Revenue per
requisition was 3.4% below the prior year, principally driven by reduced
reimbursement.

For the first quarter of 2013, adjusted operating income from continuing
operations was $272 million, or 15.2% of revenues, compared to $318 million,
or 16.7% of revenues, for 2012. For the first quarter of 2013, reported
operating income from continuing operations was $227 million, or 12.7% of
revenues, compared to $298 million, or 15.6% of revenues, in 2012. Cash
provided by operations, which was reduced by the deferral of approximately $70
million in tax payments from the fourth quarter of 2012, was $47 million,
compared to $161 million in the first quarter of 2012. During the first
quarter of 2013, the company repurchased $62 million of its common shares.

Steve Rusckowski, President and CEO, commented: "Our results for the quarter
reflect our previously stated expectation for revenue softness during the
first half of 2013, with gradual improvement throughout the remainder of the
year. Contributors to the first quarter's revenue softness include a
challenging year-over-year comparison; continued weakness in healthcare
utilization; and reductions in reimbursement driven by Medicare and commercial
payers.

"Our primary focus in 2013 is driving operational excellence and restoring
growth, which are two elements of our five-point strategy. We continued to
make excellent progress with our Invigorate cost-reduction initiative, which
mitigated much of the bottom line impact from the revenue softness.
Additionally, we are refocusing on diagnostic information services and
delivering disciplined capital deployment. We completed the previously
announced sale of HemoCue and plan to deploy the $300 million in proceeds into
share repurchases. In addition, we announced the planned acquisition of
outreach testing operations of Dignity Health in California and Nevada, and
expect to complete additional fold-in acquisitions, consistent with our goal
of contributing 1-2% revenue growth per year through strategically aligned,
accretive acquisitions."

Outlook for 2013

"While performance in the first quarter was adversely impacted by a number of
factors, our efforts to restore growth, which are building momentum, coupled
with easier year-over-year comparisons for the remainder of the year and the
expectation of additional acquisitions, give us confidence in our full year
outlook for 2013," Mr. Rusckowski said.

For 2013, the company estimates results from continuing operations, before
special items, as follows:

  oRevenues now expected to approximate the prior year level, compared to
    previous guidance of 0% to 1% growth;
  oEarnings per diluted share to be between $4.35 and $4.55, unchanged;
  oCash provided by operations to approximate $1 billion, unchanged; and
  oCapital expenditures to approximate $250 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 and
CEO succession costs. Adjusted measures are presented because management
believes those measures are useful adjuncts to reported results under
accounting principles generally accepted in the United States. Adjusted
measures should not be considered as an alternative to the corresponding
measures determined 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 800-835-4373 for domestic
callers, or 402-280-1657 for international callers. Telephone replays will be
available from 10:30 a.m. Eastern Time on April 17 until midnight Eastern Time
on May 15, 2013.

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 that patients and doctors need 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 and strategic partners and other factors discussed in
"Business," "Risk Factors," "Cautionary Factors that May Affect Future
Results," "Legal Proceedings," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Quantitative and
Qualitative Disclosures About Market Risk" in the company's 2012 Annual Report
on Form 10-K and other factors discussed in the company's Current Reports on
Form 8-K.

This earnings release, including the attached financial tables, is available
online in the Newsroom section at www.QuestDiagnostics.com.

TABLES FOLLOW

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Statements of Operations

For the Three Months Ended March 31, 2013 and 2012

(in millions, except per share and percentage data)

(unaudited)
                                                      Three Months Ended

                                                      March 31,
                                                      2013         2012
Net revenues                                          $ 1,786.6    $ 1,908.7
Operating costs and expenses:
Cost of services                                      1,091.8      1,109.2
Selling, general and administrative                   447.9        483.3
Amortization of intangible assets                     19.3         18.8
Other operating expense (income), net                 0.6          (0.4)
Total operating costs and expenses                    1,559.6      1,610.9
Operating income                                      227.0        297.8
Other income (expense):
Interest expense, net                                 (39.9)       (42.1)
Equity earnings in unconsolidated joint ventures      6.1          7.6
Other income, net                                     3.4          4.8
Total non-operating expenses, net                     (30.4)       (29.7)
Income from continuing operations before taxes        196.6        268.1
Income tax expense                                    73.3         102.6
Income from continuing operations                     123.3        165.5
Income from discontinued operations, net of taxes     20.3         3.0
Net income                                            143.6        168.5
Less: Net income attributable to noncontrolling       7.8          9.4
interests
Net income attributable to Quest Diagnostics          $ 135.8      $ 159.1
Amounts attributable to Quest Diagnostics' common
stockholders:
Income from continuing operations                     $ 115.5      $ 156.1
Income from discontinued operations, net of taxes     20.3         3.0
Net income                                            $ 135.8      $ 159.1
Earnings per share attributable to Quest Diagnostics'
common stockholders - basic:
Income from continuing operations                     $ 0.73       $ 0.98
Income from discontinued operations                   0.13         0.02
Net income                                            $ 0.86       $ 1.00
Earnings per share attributable to Quest Diagnostics'
common stockholders - diluted:
Income from continuing operations                     $ 0.72       $ 0.97
Income from discontinued operations                   0.13         0.02
Net income                                            $ 0.85       $ 0.99
Weighted average common shares outstanding:
Basic                                                 158.1        158.3
Diluted                                               159.4        159.7
Operating income as a percentage of net revenues      12.7      %  15.6      %

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Balance Sheets

March 31, 2013 and December 31, 2012

(in millions, except per share data)
                                                     March 31,    December 31,

                                                     2013         2012
                                                     (unaudited)
Assets
Current assets:
Cash and cash equivalents                            $  133.6     $  295.6
Accounts receivable, net                             930.0        867.0
Inventories                                          89.8         93.1
Deferred income taxes                                158.7        174.2
Prepaid expenses and other current assets            97.8         91.0
Current assets held for sale                         47.3         40.2
Total current assets                                 1,457.2      1,561.1
Property, plant and equipment, net                   753.9        755.8
Goodwill                                             5,630.1      5,535.8
Intangible assets, net                               899.4        872.2
Other assets                                         212.8        204.6
Non-current assets held for sale                     352.8        354.4
Total assets                                         $  9,306.2   $  9,283.9
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses                $  935.0     $  1,016.2
Short-term borrowings and current portion of         254.4        9.4
long-term debt
Current liabilities held for sale                    18.8         22.0
Total current liabilities                            1,208.2      1,047.6
Long-term debt                                       3,146.8      3,354.2
Other liabilities                                    663.4        635.5
Non-current liabilities held for sale                60.4         60.8
Stockholders' equity:
Quest Diagnostics stockholders' equity:
Common stock, par value $0.01 per share; 600 shares
authorized

at both March 31, 2013 and December 31, 2012; 215.3
shares and                                           2.2          2.2

215.1 shares issued at March 31, 2013 and December
31, 2012,

respectively
Additional paid-in capital                           2,364.7      2,370.7
Retained earnings                                    4,778.6      4,690.4
Accumulated other comprehensive income               10.1         14.3
Treasury stock, at cost; 57.4 shares and 56.7 shares
at March 31,                                         (2,955.6)    (2,914.5)

2013 and December 31, 2012, respectively
Total Quest Diagnostics stockholders' equity         4,200.0      4,163.1
Noncontrolling interests                             27.4         22.7
Total stockholders' equity                           4,227.4      4,185.8
Total liabilities and stockholders' equity           $  9,306.2   $  9,283.9

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2013 and 2012

(in millions)

(unaudited)
                                                  Three Months Ended March 31,
                                                  2013             2012
Cash flows from operating activities:
Net income                                        $   143.6        $  168.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization                     70.2             72.2
Provision for doubtful accounts                   71.9             80.7
Deferred income tax benefit                       (0.2)            (15.4)
Stock-based compensation expense                  5.0              20.1
Excess tax benefits from stock-based compensation (0.9)            (3.3)
arrangements
Other, net                                        (0.6)            (0.2)
Changes in operating assets and liabilities:
Accounts receivable                               (131.7)          (147.2)
Accounts payable and accrued expenses             (77.1)           (116.2)
Income taxes payable                              (28.5)           112.0
Other assets and liabilities, net                 (4.5)            (9.9)
Net cash provided by operating activities         47.2             161.3
Cash flows from investing activities:
Business acquisitions, net of cash acquired       (90.4)           (50.6)
Capital expenditures                              (49.1)           (30.0)
Increase in investments and other assets          (0.6)            (2.7)
Net cash used in investing activities             (140.1)          (83.3)
Cash flows from financing activities:
Proceeds from borrowings                          176.5            365.0
Repayments of debt                                (132.4)          (467.3)
Purchases of treasury stock                       (61.6)           (50.0)
Exercise of stock options                         14.2             64.4
Excess tax benefits from stock-based compensation 0.9              3.3
arrangements
Dividends paid                                    (47.7)           (26.9)
Distributions to noncontrolling interests         (3.4)            (5.9)
Other financing activities, net                   (6.2)            19.9
Net cash used in financing activities             (59.7)           (97.5)
Net change in cash and cash equivalents           (152.6)          (19.5)
Less: Increase in cash and cash equivalents       (9.4)            â€"
included in assets held for sale
Cash and cash equivalents, beginning of period    295.6            164.9
Cash and cash equivalents, end of period          $   133.6        $  145.4
Cash paid during the period for:
Interest                                          $   51.8         $  49.8
Income taxes                                      $   84.0         $  10.3

Notes to Financial Tables

1) The computation of basic and diluted earnings per common share is as
   follows:

                                          Three Months Ended March 31,
                                          2013                  2012
                                          (in millions, except per share data)
Amounts attributable to Quest
Diagnostics' common stockholders:
Income from continuing operations         $     115.5           $   156.1
Income from discontinued operations, net  20.3                  3.0
of taxes
Net income available to common            $     135.8           $   159.1
stockholders
Income from continuing operations         $     115.5           $   156.1
Less: Earnings allocated to participating 0.4                   0.6
securities
Earnings available to Quest Diagnostics'  $     115.1           $   155.5
common stockholders - basic and diluted
Weighted average common shares            158.1                 158.3
outstanding - basic
Effect of dilutive securities:
Stock options and performance share units 1.3                   1.4
Weighted average common shares            159.4                 159.7
outstanding - diluted
Earnings per share attributable to Quest
Diagnostics' common stockholders - basic:
Income from continuing operations         $     0.73            $   0.98
Income from discontinued operations       0.13                  0.02
Net income                                $     0.86            $   1.00
Earnings per share attributable to Quest
Diagnostics' common stockholders -
diluted:
Income from continuing operations         $     0.72            $   0.97
Income from discontinued operations       0.13                  0.02
Net income                                $     0.85            $   0.99

   Adjusted amounts for operating income, operating income as a percentage of
   net revenues, income from continuing operations, and diluted earnings per
   common share represent the Company's results before the impact of the
   restructuring and integration charges and first quarter 2012 costs
   associated with the succession of our prior CEO. Adjusted measures are
2) 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 following tables reconcile reported
   results to adjusted results:

                      Three Months Ended March 31, 2013
                      (dollars in millions, except per share data)
                                             Restructuring

                                             and Integration

                                             Charges
                      As Reported            (a)                  As Adjusted
Operating income      $     227.0            $     44.5           $   271.5
Operating income as a 12.7            %      2.5           %      15.2       %
% of net revenues
Income from
continuing operations 115.5                  27.4                 142.9
(b)
Diluted earnings per  0.72                   0.17                 0.89
common share
(a) Represents costs primarily associated with workforce reductions and
professional fees incurred in connection with further restructuring and
integrating our business.
(b) For the restructuring and integration charges, income tax benefits were
calculated using a combined federal and state rate of 38.4%.

                Three Months Ended March 31, 2012
                (dollars in millions, except per share data)
                                  Restructuring        CEO

                                  and Integration      Succession

                                  Charges              Costs
                As Reported       (c)                  (d)         As Adjusted
Operating       $    297.8        $     13.1           $  7.1      $  318.0
income
Operating
income as a %   15.6         %    0.7           %      0.4     %   16.7      %
of net revenues
Income from
continuing      156.1             8.0                  4.4         168.5
operations (e)
Diluted
earnings per    0.97              0.05                 0.03        1.05
common share
(c) Represents costs primarily associated with professional fees incurred in
connection with further restructuring and integrating our business.
(d) Principally represents accrued severance and accelerated vesting of equity
awards in connection with the succession of our prior CEO.
(e) For the restructuring and integration charges and CEO succession costs,
income tax benefits were calculated using a combined federal and state rate of
38.7%.

   The following tables summarize the impact to the year over year comparisons
3) for the restructuring and integration charges and CEO succession costs on
   certain reported results for the three months ended March 31, 2013 and 2012
   (in millions, except per share data):

Three months ended March 31, 2013 and 2012
                        Restructuring and Integration  CEO Succession Costs
                        Charges
                        2013        2012    Better     2013    2012    Better
                                            (Worse)                    (Worse)
Cost of services        $  17.4     $ 4.0   $ (13.4)   $ â€"   $ â€"   $  â€"
Selling, general and    27.1        9.1     (18.0)     â€"     7.1     7.1
administrative
Operating income        44.5        13.1    (31.4)     â€"     7.1     7.1
Income from continuing  27.4        8.0     (19.4)     â€"     4.4     4.4
operations
Diluted earnings per    0.17        0.05    (0.12)     â€"     0.03    0.03
common share

   Other income, net represents miscellaneous income and expense items related
   to non-operating activities, such as gains and losses associated with
4) investments and other non-operating assets. For the three months ended
   March 31, 2013 and 2012, other income, net includes gains of $3.4 million
   and $4.8 million, respectively, associated with investments held in trusts
   pursuant to our supplemental deferred compensation plans.
   For the three months ended March 31, 2013, the Company repurchased 1.1
   million shares of its common stock at an average price of $57.81 per share
5) for $62 million. For the three months ended March 31, 2013, the Company
   reissued 0.4 million shares for employee benefit plans. As of March 31,
   2013, the Company had $803 million remaining under share repurchase
   authorizations.
   For the three months ended March 31, 2013, income from discontinued
6) operations, net of taxes includes discrete tax benefits of $19.8 million
   associated with favorable resolution of certain tax contingencies related
   to our NID business, which was wound down in 2006.
   The outlook for adjusted diluted earnings per common share and adjusted
   operating income as a percentage of net revenues represent management's
   estimates for the full year 2013 before the impact of the restructuring and
   integration charges. These measures are presented because management
   believes they are useful adjuncts to the corresponding amounts determined
   under accounting principles generally accepted in the United States since
   they are meaningful to evaluate the Company's ongoing operating performance
7) and are on a basis consistent with previous estimates of diluted earnings
   per common share and operating income as a percentage of net revenues.
   Adjusted diluted earnings per common share and adjusted operating income as
   a percentage of net revenues are not measures of financial performance
   under accounting principles generally accepted in the United States and
   should not be considered as an alternative to the corresponding amounts
   determined under accounting principles generally accepted in the United
   States.
   The following table reconciles our 2013 outlook, on an adjusted basis, to
   the corresponding amounts determined under accounting principles generally
   accepted in the United States. The outlook, on an adjusted basis, excludes
   the impact of the restructuring and integration charges.

                    Outlook for 2013 Before Special Items
                                         Restructuring

                                         and

                                         Integration

                                         Charges
                    As Reported          (a)                  As Adjusted
Diluted earnings    $4.18 - $4.38        $0.17                $4.35 - $4.55
per common share
(a) Represents pre-tax costs of $44.5 million primarily associated with
workforce reductions and professional fees incurred in connection with further
restructuring and integrating our business.

Contacts:
(Investors) Dan Haemmerle, 973-520-2900,
Daniel.R.Haemmerle@questdiagnostics.com
(Media) Gary Samuels, 973-520-2800, Gary.D.Samuels@questdiagnostics.com

SOURCE Quest Diagnostics Incorporated

Website: http://www.questdiagnostics.com
 
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