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Quest to buy Shiel Medical Lab, Updates Expected Revenue, EPS Forecast

NEW YORK (360Dx) – Quest Diagnostics today announced an agreement to buy the Shiel Medical Laboratory business from Fresenius Medical Care.

On Wednesday, Quest also said that it anticipates a 1.5 percent reduction in revenues for the third quarter, due to recent natural disasters in the US and elsewhere. The company also expects a $.10 reduction in EPS and adjusted EPS for the third quarter.

Shiel is a clinical laboratory provider serving the New York-New Jersey metropolitan area, and the deal is expected to expand Quest's patient service centers in the area. Services provided by Shiel's labs in Rockleigh, New Jersey and Brooklyn, New York will transition to Quest's clinical lab in Teterboro, New Jersey.

Based on Quest's lab data analytics, Quest and Fresenius also will collaborate to identify patients with early-stage chronic kidney disease who may benefit from treatment to slow progression to end-stage renal disease.

The deal, which is being structured as an asset purchase, is expected to be completed in the fourth quarter. Fresenius' dialysis-related lab services business, Spectra Labs, is not part of the deal. 

Financial and other terms of the agreement were not disclosed. 

In a research note, Barclays analyst Jack Meehan said today that the deal could add up to 1 percent of revenue growth to Quest. "Overall, we believe the acquisition exemplifies the upcoming challenges that are coming to laboratory industry and Quest’s desire to be a consolidator of testing in this environment," he added, referring to preliminary rates released by the Centers for Medicare & Medicaid Services earlier this week under the Protecting Access to Medicare Act. The proposed rates have drawn fire from Quest and other reference labs, who said the proposed rates are too low. 

Separately, Quest also updated its revenue and EPS forecast for the third quarter. It attributed the changes to Hurricane Harvey, which walloped Texas, and Hurricane Irma, which devastated Florida. In a statement, Quest said it has "a proportionately large presence" in the two states, and added that operations in both states have "largely returned to normal."

Quest noted that Hurricane Maria's pummeling of Puerto Rico and earthquakes in Mexico also negatively impacted operations.

"While our facilities in Florida and Texas remained operational and did not suffer significant damage, our customers faced challenges accessing our services," Quest Chairman, President, and CEO Steve Rusckowski said in a statement. "We do not expect any long-term impact to our financial results from hurricanes Harvey and Irma."

The company affirmed its financial guidance for full-year 2017, provided in July when it released its Q2 earnings results. Revenues for the year are anticipated to be in the range of $7.69 billion to $7.74 billion. EPS range is anticipated to be between $4.90 and $5.00. Anticipated adjusted EPS is in the range of $5.62 to $5.72.

Quest is scheduled to report its third quarter financial results on Oct. 19.