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Quest Diagnostics Q2 Revenues Grow 2 Percent

NEW YORK – Quest Diagnostics reported today that its second quarter revenues grew a little less than 2 percent year over year.

For the three months ended June 30, total revenues reached $1.95 billion, up from $1.92 billion a year ago, and beating the consensus Wall Street estimate of $1.94 billion.

Quest Diagnostic Information Services revenues also grew about 2 percent to $1.87 billion from $1.84 billion. On a conference call, Quest CFO Mark Guinan said that the increase was driven by strong volume growth and acquisitions, but partially offset by higher reimbursement pressures and patient concessions.

Volume increased 4.4 percent year over year. Excluding acquisitions, volume growth was 2.9 percent, Guinan said. He also noted that Quest recently cancelled a capitated contract, which in the past represented large volumes but "very low" margins.

"Apparently, one of our competitors was willing to offer lower rates that were prospectively very unprofitable for us. Therefore, rather than accept the rate cut, we walked away from the business," Guinan said.

That move had very little impact on Quest's top and bottom lines but created a 70 basis point headwind to organic volume growth and will continue to do so for the remainder of 2019, he added.

Quest President, Chairman and CEO Steve Rusckowski further noted on the call that the company saw growth across all its major health plan customers, except for Aetna, which had been anticipated. He also highlighted the recent deal between Quest and Catholic Health Services of Long Island, under which Quest will provide lab services and reference testing.

Company officials, however, repeated several times on the call pressures the firm is seeing on the payer side both from government and commercial insurers. For 2019, the firm continues to expect more than $200 million of reimbursement pressure from the Protecting Access to Medicare Act, as well as new in-network health plan contracts, and "the modest reimbursement pressure we typically experience each year from other sources," according to Guinan.

While Quest didn't make any acquisitions in Q2 2019, Rusckowski said that the firm's pipeline remains "strong," and it remains on track with its goal of 2 percent growth for the year through M&A. With continued pressure from PAMA and commercial health plans, "We continue to have a lot of conversations around integrated delivery systems [and] lab strategies," he said.

In recent years, Quest has forged deals with Safeway and Walmart to make some laboratory tests available to consumers in a retail setting. Today, Rusckowski said that Quest has about 200 such patient service centers, the majority of them in Safeway stores. Eventually, the company would like to have about 2,200 patient service centers in the retail space, he added.

For Q2 2019, income from continuing operations attributable to Quest was $206 million, or $1.51 per share, down from $219 million, or $1.57 per share, in Q2 2018. On an adjusted basis, EPS from continuing operations was $1.73, beating analysts' average estimate of $1.68.

For full-year 2019, Quest maintained its previous revenue guidance of a range between $7.60 billion and $7.75 billion. Its EPS is expected to be greater than $5.29, above a previous forecast of above $5.16. Adjusted EPS is anticipated to be above $6.40, the same as previous guidance.

Quest exited the quarter with $273 million in cash and cash equivalents.

In early morning trading today on the New York Stock Exchange, Quest's shares were up 5 percent to $102.91.