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Quest Diagnostics Q4 Revenues Up 5 Percent

NEW YORK – Quest Diagnostics today reported a 5 percent year-over-year rise in revenues for the fourth quarter, beating the consensus expectation from Wall Street analysts.

Revenue for the three months ended Dec. 31, 2019 was $1.93 billion, up from $1.84 billion in the same quarter last year. The consensus Wall Street estimate was $1.92 billion.

Test volumes grew 4 percent during the quarter with revenue per test growing a little more than 1 percent.

During a conference call following release of the results, Quest Chairman, President, and CEO Steve Rusckowski, said that expanded access to healthcare plan networks combined with good operational execution allowed the company to counter what he called "significant reimbursement pressure."

Speaking on the call, Quest CFO Mark Guinan attributed much of that pressure to the Protecting Access to Medicare Act (PAMA), which he said amounted to a headwind of nearly 120 basis points in 2019. He noted that this impact included both direct cuts to the clinical lab fee schedule as well as more modest "indirect price changes, primarily from Medicaid."

Guinan said that looking forward to 2020, the company expects reimbursement pressures will contribute headwinds of slightly more than 200 basis points, with "PAMA and associated impacts" expected to negatively affect revenues by $80 million to $85 million. He said Quest anticipates a similar impact from PAMA in 2021.

Guinan noted that the company was feeling pressure from the tightening labor market, as well, and said that it was "investing in employee pay and benefits."

Despite these challenges, Rusckowski said he saw three fundamental changes to the lab marketplace that he believed favored Quest: the impact of PAMA, which could allow the company to acquire lab businesses unable to manage the reimbursement cuts put in place by the law; the increased attention by payors to the wide variation in payment rates across providers; and patients' increased exposure to healthcare costs, which could lead them to move to lower cost providers like Quest.

During the quarter, net income attributed to Quest was $253 million, or $1.86 per share, up sharply from $127 million, or $.92 per share, in the fourth quarter last year. Adjusted EPS was $1.67 and beat analysts' average estimate of $1.60.

In the fourth quarter Quest spent $349 million on SG&A, down 2 percent from $356 million in the same quarter last year.

The company ended the quarter with $1.19 billion in cash and cash equivalents.

For full-year 2019, net revenues were $7.73 billion, up 3 percent from $7.53 billion in 2018, and above the consensus estimate of $7.72 billion. Test volumes increased more than 4 percent for the year while revenue per test fell around 1 percent.

Net income for 2019 attributable to Quest from continuing operations was $838 million, or $6.13 per share, up 14 percent from $736 million, or $5.29 per share, in 2018. Adjusted EPS for the year was $6.56, beating the consensus estimate of $6.49.

For 2019, Quest spent $1.46 billion on SG&A, up 3 percent from $1.42 billion in 2018.

For full-year 2020, the company provided revenue guidance of between $7.80 billion and $7.96 billion, an increase of approximately 1 to 3 percent versus 2019. Reported EPS is expected to be greater than $5.51 and adjusted EPS is expected to be greater than $6.60.

Quest expects to grow revenues by around 2 percent as a result of acquisitions in 2020, Rusckowski said, noting that the company did not hit that level in 2019.

He highlighted the acquisition, announced last week, of Blueprint Genetics, which he said the company viewed as "a good chance to invest in advanced diagnostics that will provide some growth and capabilities to our organization that we think are helpful to accelerate."

Rusckowski also provided an update on the company's plan to consolidate all its immunoanalysis work to a single vendor, noting that it has selected a vendor and started the deployment of those systems in some of its larger facilities.

In late morning trading on the New York Stock Exchange, shares of Quest were up 1 percent at $112.09.