Quest Diagnostics Reports Fourth Quarter And Full Year 2012 Financial Results; Announces 2013 Guidance

Quest Diagnostics Incorporated has announced that for the fourth quarter ended December 31, 2012, adjusted income from continuing operations was $163 million, or $1.01 per diluted share, compared to adjusted income from continuing operations of $191 million, or $1.20 per diluted share, for 2011. In the fourth quarter of 2012, as previously announced, Hurricane Sandy reduced revenues by an estimated $21 million, operating income by an estimated $16 million and earnings per diluted share by an estimated $0.06. Fourth quarter results include a benefit of $0.02 per share in 2012 and $0.08 in 2011 associated with discrete tax items.

For the fourth quarter of 2012, reported income from continuing operations was $140 million, or $0.87 per diluted share, compared to reported income from continuing operations of $184 million, or $1.16 per diluted share, in 2011. Income from continuing operations in the fourth quarter of 2012 was reduced by $0.14 per diluted share related to restructuring and integration costs. In the fourth quarter of 2011, income from continuing operations was reduced by $0.02 per diluted share related to restructuring and integration costs and by $0.02 per diluted share related to CEO succession costs.

Revenues from continuing operations were $1.8 billion for the fourth quarter, 4.0% below the prior year. Diagnostic information services revenues decreased 4.4%. Volume, measured by the number of requisitions, declined 2.4% versus the prior year and revenue per requisition was 2.0% below the prior year. The impact of Hurricane Sandy in the quarter is estimated to have reduced diagnostic information services revenues by 1.3% and volume by 1.0%.

For the fourth quarter of 2012, adjusted operating income from continuing operations was $301 million, or 17.0% of revenues, compared to $332 million, or 17.9% of revenues, for 2011. Reported operating income from continuing operations was $265 million, or 14.9% of revenues, compared to $320 million, or 17.3% of revenues, in 2011. Cash provided by operations was $380 million, and benefited $90 million due to the timing of tax payments. Cash from operations was $338 million in the fourth quarter of 2011.  During the fourth quarter of 2012, the company reduced outstanding debt by $147 million and repurchased $50 million of its common shares.

"During the fourth quarter, continued strong progress in our Invigorate cost-reduction initiative enabled us to mitigate some of the impact of revenue softness, which was exacerbated by the impact of Hurricane Sandy," said Steve Rusckowski, President and CEO. "In late 2012, we unveiled our new strategic plan to improve performance and build value for our shareholders. We have moved aggressively on all five elements of our plan, starting with our first strategic goal of refocusing on our core diagnostic information services business. We sold OralDNA and announced the planned sale of HemoCue. We continued to pursue a disciplined approach to capital deployment, announcing a substantial increase in our dividend, repurchasing shares, and investing in strategic opportunities as exemplified by our new relationship with UMass Memorial Health Care."

In connection with the company's strategy to refocus on diagnostic information services, the company sold OralDNA and announced its plan to sell its HemoCue diagnostic products business. As a result, its consolidated income statements for the full-year 2012 and 2011 reflect the operating results of these businesses as discontinued operations.

Full Year 2012 Performance

For the full year 2012, revenues from continuing operations were $7.4 billion, essentially unchanged from the prior year. Adjusted income from continuing operations was $701 million, or $4.36 per diluted share, compared to $704 million, or $4.38 per diluted share, in 2011. On a reported basis, income from continuing operations was $630 million, or $3.92 per diluted share, compared to $459 million, or $2.85 per diluted share, in 2011.

Adjusted operating income from continuing operations for 2012 was $1.3 billion, or 17.8% of revenues, compared to $1.3 billion, or 17.5% of revenues, for 2011. On a reported basis, operating income from continuing operations was $1.2 billion, or 16.3% of revenues, compared to $987 million, or 13.4% of revenues, in 2011. Cash provided by operations was $1.2 billion. In 2011, cash provided by operations was $895 million and was reduced by the Medi-Cal settlement payment. During 2012, the company reduced outstanding debt by $654 million and repurchased $200 million of its common shares.

Outlook for 2013

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

•    Revenue growth of between 0% and 1%;
•    Earnings per diluted share to be between $4.35 and $4.55
•    Cash provided by operations to approximate $1 billion
•    Capital expenditures to approximate $250 million

"In 2013 our focus will continue to be driving operational excellence and restoring growth," said Mr. Rusckowski. "We will build on the positive momentum of our 2012 Invigorate performance in 2013. We expect results from our efforts to restore growth to gradually build throughout 2013, and anticipate continued revenue softness in the first half, with improvement thereafter."