Quest Reports Soft First Quarter, Says Numbers Will Improve in Second Half

Quest Diagnostics is trying to get past a series of disappointing earnings reports and reap the benefits of a reorganization recently orchestrated by Chief Executive Officer Steve Rusckowski. However, as demonstrated by its first-quarter earnings report, it hasn’t arrived there just yet. Quest reported net income of $135.8 million, compared to $159.1 million for the first quarter of 2012, a drop of 15 percent. Revenue was $1.79 billion, compared to $1.9 billion for first quarter of 2012, a drop of 6.4 percent. The company now forecasts that it expects to finish 2013 with revenues essentially flat, down slightly from prior guidance, when company officials expected it could have grown as much as 1 percent. Guidance regarding earnings per diluted share, projected to be about one-third higher than in 2012, remain unchanged. “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,” said Rusckowski. “Contributors to the first quarter’s revenue softness include a challenging year-over-year comparison, continued weakness in health care utilization, and reductions in reimbursement driven by Medicare and commercial payers.” Rusckowski added that the company had continued to make progress in its reorganization, which eliminated more than 600 management positions, and in cutting costs. For the first quarter, operating costs and expenses were $1.55 billion, down about 4 percent from the prior year’s quarter. “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,” said Rusckowski. Indeed, Quest announced a deal at virtually the same time it released its earnings report on April 17. The company announced it had acquired the lab outreach operations in California and Nevada of Dignity Health, a San Francisco-based not-for-profit hospital chain. It operates 35 hospitals in those two states, along with four others in Arizona. The transaction is expected to close in June, pending regulatory approvals. Terms of the deal were not disclosed.