NEW YORK – Quest Diagnostics reported on Tuesday a 4 percent year-over-year revenue growth for the third quarter, beating analyst expectations.
Revenues were $1.96 billion for the three-month period ended Sept. 30, 2019, up from $1.89 billion in the third quarter last year. The consensus Wall Street estimate was $1.94 billion.
Revenues grew despite continued downward pressure on reimbursement from the Protecting Access to Medicare Act (PAMA), which Quest CFO Mark Guinan said during a conference call following the release of the earning results contributed to a decline in unit price of approximately 120 basis points during the quarter. Overall, unit price declined by 2.5 percent in Q3 while revenue per requisition fell by 1.2 percent year over year.
That was counteracted by volume growth, as measured by requisitions, of 5.1 percent. Volume growth was up 3.7 percent excluding acquisitions, with the company's new contract with UnitedHealthcare modestly contributing to that rise, Guinan said.
The company said that among the major drivers of testing revenue during the quarter were drug monitoring, tuberculosis testing, STD testing, and cardioIQ.
Guinan added that revenues for Quest's diagnostic information services group were up about 4 percent year over year to $1.88 billion from $1.81 billion.
Quest Chairman, President, and CEO Steve Rusckowski noted that "there is mounting evidence that PAMA is hurting" the lab industry and added that the downward pressure on reimbursement continues to create acquisition opportunities for Quest as the lab industry consolidates.
He said that while Quest's "acquisition pipeline remains strong … most deals in our pipeline are taking more time to develop than in the past" due to the fact that potential deals with hospital systems are broader in scope than in the past.
"Hospital CEOS are also interested in how we can help them with their professional lab services and take on more of their reference work," Rusckowski said. "As a result of this complexity, proposed relationships take longer to develop."
Rusckowski also highlighted during the call the effort within Quest to consolidate its immunoassay platforms, moving them to a single supplier, which he said "enables greater throughput, a more efficient footprint, and is expected to save us tens of millions of dollars per year."
Quest also continues to build its retail outlets, with Rusckowski noting that of its roughly 2,100 patient service centers, roughly 35 percent to 40 percent are in a retail environment. He added that Quest is the laboratory provider for Walmart's Health Centers, clinics that will offer services including primary care, lab testing, and X-ray. Walmart opened the first Health Center last month.
For Q3, net income attributable to Quest was $215 million, or $1.56 per share, up from $213 million, or $1.53 per share, for the same quarter in 2018.
Adjusted EPS was $1.76 per share for the quarter and beat the consensus analyst estimate of $1.71.
During the quarter, Quest spent $362 million on SG&A, up 2 percent from $354 million in the same quarter last year. The company ended Q3 2019 with $434 million in cash and cash equivalents.
Quest revised its guidance for the full year with reported revenues now expected to be approximately $7.72 billion compared to previous guidance of between $7.60 billion and $7.75 billion.
EPS is expected to be in the range of $5.48 to $5.53 compared to a previous guidance of above $5.29. Adjusted EPS is now expected to be between $6.45 and $6.50 compared to a previous guidance of above $6.40.
In morning trading on the New York Stock Exchange Quest's shares were down 1 percent to $101.13.