Quest Diagnostics second quarter revenues increase 1.5% to $1.9 billion

Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of diagnostic testing, information and services, announced today that for the second quarter ended June 30, 2011, adjusted income from continuing operations was $179 million, or $1.12 per share. For the second quarter of 2010, reported income from continuing operations was $195 million, or $1.07 per share. Income from continuing operations in 2011 was reduced by $0.10 per share of transaction and integration costs associated with the Athena Diagnostics and Celera transactions, which were completed during the second quarter. Including these items, reported income from continuing operations was $164 million, or $1.02 per diluted share.

Revenues increased 1.5% to $1.9 billion for the second quarter. The acquisitions of Athena and Celera contributed approximately 2.5% to revenue growth. Clinical testing volume, measured by the number of requisitions, decreased 0.9%, and revenue per requisition increased 1.6% compared to the prior year.

For the second quarter of 2011, adjusted operating income was $337 million, or 17.7% of revenues. For the second quarter of 2010, reported operating income was $366 million, or  19.5% of revenues. Including the impact of transaction and integration costs, reported operating income was $317 million, or 16.6% of revenues, in 2011. Cash flow from operations was $60 million, and was reduced by the Medi-Cal settlement payment and transaction and integration costs related to Athena and Celera.  Before these items, cash flow was $271 million, compared to $209 million in 2010.

"During the second quarter, revenues grew 1.5%, adjusted earnings per share increased 5%, and we generated strong underlying cash flow. In addition, we began the integration of Athena and Celera into Quest Diagnostics," said Surya N. Mohapatra, Ph.D., Chairman and CEO.

"Today we are announcing a comprehensive initiative to improve profitability in this competitive marketplace and better prepare us for the substantial growth opportunities in the future. This is designed to improve operations and make our company more agile and efficient. We expect to reduce our cost structure by $500 million over the next three years to help us reach our goal of 20% operating income."

First Half Performance

Revenues of $3.7 billion increased 1.2% from 2010. For the first six months of 2011, adjusted income from continuing operations was $343 million, or $2.12 per diluted share, compared to adjusted income from continuing operations of $377 million, or $2.07 per diluted share, for 2010. On a reported basis, income from continuing operations was $110 million, or $0.68 per diluted share, compared to $357 million, or $1.96 per diluted share, for the first half of 2010.

Adjusted operating income for the first half of 2011 was $638 million, or 17.0% of revenues, compared to $696 million, or 18.8% of revenues, for 2010. On a reported basis, operating income was $348 million, or 9.3% of revenues, in 2011 and $664 million, or 18.1% of revenues, in 2010. Cash provided by operations was $220 million and was reduced by the Medi-Cal settlement payment and transaction and integration costs related to Athena and Celera.  Before these items, cash flow was $432 million, compared to $448 million in 2010. During the first half of 2011, the company repurchased $835 million of its common shares.

Outlook for 2011 Updated

For the full-year 2011, the company now estimates results from continuing operations, before future special items, as follows:

• Revenues to grow 1.5%;
• Earnings per share to be between $4.25 and $4.35 on an adjusted basis and between $2.81 and $2.91 on a reported basis.
• Operating income as a percentage of revenues to be 17.5% on an adjusted basis and approach 14% on a reported basis;
• Cash from operations of $1.1 billion before the effect of the Medi-Cal settlement payment and transaction and integration costs, and $900 million after these items; and
• Capital expenditures of $200 million.