Quest Diagnostics’ (NYSE:DGX) second-quarter 2016 adjusted earnings per share (EPS) of $1.34 came 3 cents ahead of the Zacks Consensus Estimate and exceeded the year-ago number by 7.2%.
Adjusted EPS in the reported quarter excludes the gain from the sale of the company's Focus Diagnostics products business, charges related to early retirement of certain debt as well as restructuring and integration costs. Reported EPS in the second quarter came in at $1.37, representing a year-over-year surge of 69.1%.
Reported revenues for the second quarter inched down 1% year over year to $1.91 billion, while it topped the Zacks Consensus Estimate of $1.90 billion. The year over year decline in the reported revenues were due to the company’s strategic divestitures in order to refocus on core diagnostic information services. However, excluding the 2015 clinical trials testing business contribution and Celera products revenue; and Focus Diagnostics products revenues, sales increased 3.6% year over year.
Volume (measured by the number of requisitions) increased 1.9% year over year. Revenue per requisition inched up 0.2% from the year-ago quarter. Diagnostic information services revenues in the quarter grew 2.2% on a year-over-year basis.
Among operating costs, cost of services during the reported quarter was $1.16 billion, down 2.3% year over year. Gross margin came in at 39.4%, up 80 basis points (bps) year over year.
Selling, general and administrative expenses increased 0.2% to $430 million in the reported quarter. Adjusted operating margin showed an improvement of 53 bps to 16.8%, with a 2.2% rise in adjusted operating income to $321 million.
Quest Diagnostics exited the second-quarter 2016 with cash and cash equivalents of $283 million, a 121% surge from the first-quarter 2016. Year-to-date net cash provided by operating activities was $464 million compared with $337 million in the comparable year-ago period.
Through the second quarter, the company repurchased 3.1 million shares for $237 million including 2.8 million shares repurchased under an accelerated share repurchase plan in May 2016 for $212 million. Quest Diagnostics is currently left with $582 million of authorization under the approved share repurchase plan.
QUEST DIAGNOSTC Price, Consensus and EPS Surprise
QUEST DIAGNOSTC Price, Consensus and EPS Surprise | QUEST DIAGNOSTC Quote
Outlook
Quest Diagnostics has lowered its earlier 2016 revenue guidance. The company currently expects full-year revenues in the range of $7.47–$7.54 billion (from earlier range of $7.52–$7.59), reflecting flat to 1% increase over 2015 revenues (growth of 1.5%–2.5%). The current Zacks Consensus Estimate for revenues stands at $7.53 billion, within the guidance range. Revenues on an equivalent basis are expected to increase of 2% to 3% over 2015.
In addition, the company’s 2016 adjusted EPS expectation remains in the range of $5.02–$5.17 (unchanged from the previous expectation). The Zacks Consensus Estimate of $5.10 remains within the guided range.
Adjusted operating cash flow for 2016 is expected to reach $1 billion. The current estimate for capital expenditure has also been reiterated in the range of $250–$300 million.
Our Take
Quest Diagnostics duly exceeded our earnings as well as revenue expectations for the second-quarter 2016. The company is currently refocusing on its core diagnostic information services business and working on delivering disciplined capital deployment.
We are also highly optimistic about the company’s focus on continued execution of its five-point strategy. According to Quest Diagnostics, its planned divestiture of sale of the company's Focus Diagnostics products business is part of this broader strategy to refocus the business on diagnostic information services. In addition, several new relationships with hospitals and integrated delivery networks were the other growth drivers.
However, over the past several quarters, the overall soft industry trends, leading to a low volume environment, have acted as a dampener for the company.
Zacks Rank
The stock presently carries a Zacks Rank #3 (Hold). Some of the better-ranked players in the broader medical sector are AmSurg Corp. (NASDAQ:AMSG) , BioScrip, Inc. (NASDAQ:BIOS) and LHC Group, Inc. (NASDAQ:LHCG) – all carrying a Zacks Rank #2 (Buy).
QUEST DIAGNOSTC (DGX): Free Stock Analysis Report
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