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Quest Diagnostics Q1 Revenues Rise 2 Percent

NEW YORK (GenomeWeb) – Quest Diagnostics today reported a 2 percent year-over year increase in its revenues for the first quarter, while its diagnostic information services business grew 3 percent.

For the three months ended March 31, Quest recorded total revenues of $1.90 billion, up from $1.86 billion in the year-ago quarter and above the consensus Wall Street estimate of $1.87 billion.

Its diagnostics information services revenues grew to $1.81 billion from $1.76 billion a year ago.

Advanced diagnostics, which includes Quest's genetic and molecular-based tests, also grew during Q1 along with non-routine testing, Quest President, Chairman, and CEO Steve Rusckowski said on a conference call after the release of the firm's financial results. Major growth drivers included genetic carrier screening, prescription drug monitoring, hepatitis C testing, and interferon tuberculosis testing, he said.

He added that Quest continues to expand its relationship with Safeway and now offers diagnostic testing services in 65 of the supermarkets. It remains on track to provide such services in 200 Safeway stores by the end of the year.

Rusckowski said that the Safeway relationship is the start of a consumer-focused strategy to work with such retailers in "a bigger way, and part of this is around providing better access." While Quest has more than 2,200 patient centers, 3,800 phlebotomists in physicians' offices, and a total of more than 6,000 access points, retailers such as Safeway have better locations.

"There are anywhere between 15 and 20 percent of laboratory requisition orders that go unfulfilled, and so we're hopeful that by having better access, we're going to get more fulfilled requisitions, and that's going to help our growth," Rusckowski said, adding that as Quest increases its presence in retail spaces, "we might shut down some of our smaller patient service centers — that saves us some money, as well."

During the quarter, Quest reported a deal to acquire PeaceHealth's outreach lab services and manage 11 of PeaceHealth's labs. The deal is expected to close in the second quarter, and in a statement, Rusckowski said the deal is anticipated to "bolster growth later in the year."

For the quarter, the company reported a 1 percent year-over-year decline in its SG&A costs to $437 million from $442 million.

Net income attributable to Quest for Q1 2017 came in at $164 million, or $1.16 per share, compared to $103 million, or $.71 per share, in Q1 2016. Adjusted EPS for the quarter was $1.33 compared to $1.13 a year ago, easily beating the analysts' average estimate of $1.18.

As of March 31, Quest had $367 million in cash and cash equivalents.

The company also raised its full-year 2017 EPS outlook to a new range of $4.73 to $4.88 from a previous range of $4.65 to $4.80. Its adjusted EPS guidance was increased to a new range of between $5.45 and $5.60 from a previous range of $5.37 to $5.52.

Quest CFO Mark Guinan said on the call that the increase in the guidance reflects a higher expected level of excess tax benefits associated with stock-based compensation.

On the call Rusckowski expressed ongoing concerns about new Medicare reimbursement rates for laboratory tests that are set to take effect next year under the Protecting Access to Medicare Act. Last month, the Centers for Medicare & Medicaid Services delayed the deadline by which labs are required to report private payor pricing data under the legislation. But Rusckowski said he is still concerned about the definition of an applicable laboratory, or those labs that are required to report such data.

"According to the Office of Inspector General's analysis, the current definition of applicable laboratory would cover only 5 percent of laboratories, representing only 69 percent of Medicare payments for labs tests in 2015," he said. "We believe that any modification should be market-based and appropriately include all applicable independent and hospital outreach laboratories."

In early morning trading on the New York Stock Exchanges Quest's shares rose 3 percent to $101.10