NEW YORK (360Dx) – Shares of Quest Diagnostics were down almost 10 percent on the New York Stock Exchange in early morning trading today following the company's announcement after the close of the market on Wednesday that it had lowered its full-year 2018 guidance on the top and bottom lines.
The revisions were announced ahead of the company's Investor Day meeting. Quest said that revenues for 2018 are now expected to be about $7.57 billion — which would represent a year-over-year increase of a little more than 2 percent — down from an earlier guidance of $7.62 billion, which would represent 3 percent growth year over year.
EPS for the year is expected to be greater than $5.34 compared to an earlier estimated range of between $5.57 to $5.64, and adjusted EPS is now expected to be greater than $6.30, down from a prior range of between $6.53 and $6.60.
Quest said that the updated revenue guidance reflects "volume softness" driven by Hurricane Michael, the California wildfires, and a recent snowstorm on the East Coast. Changes to its EPS guidance reflect an increase in reserves associated with revenue and accounts receivable.
In a statement, Quest Chairman, President, and CEO Steve Rusckowski said that despite the lowered guidance, the firm remains "well-positioned to accelerate growth and drive operational excellence in 2019 based on a range of unique capabilities and the strategic initiative we are executing."
He noted the company's expanded access to health plan lives, as well as benefits associated with its acquisitions, and a strong brand that "will drive top- and bottom-line growth, despite reimbursement challenges related in part to" the Protecting Access to Medicare Act. Over the next four years, Quest remains committed to its existing goal of generating a 3 to 5 percent revenue compound annual growth rate, and it has updated its earnings goal to a compound annual growth rate of between 4 and 6 percent, he added.
PiperJaffray analyst William Quirk said in a research note on Wednesday that he believes the guidance reduction is "largely a one-time event" and he expects recent M&A activity to ramp up as hospitals struggle with lower PAMA rates.
Quest has been on a buying binge during recent months with acquisitions of the clinical lab services business of Boyce and Bynum Pathology Laboratories; certain assets of the outreach laboratory services operation of Hurley Medical Center; and specialized anatomic pathology service firm PhenoPath.
Quirk also anticipates Quest's organic volumes to increase in 2019, and he maintained a Neutral rating on the firm's stock and a price target of $110 per share.
Quest also said that its board has increased its quarterly dividend to $.53 per share from $.50 per share. On an annual basis, the dividend will be increased to $2.12 per share, starting with the dividend payable on Jan. 30, 2019 to shareholders on record as of Jan. 15, 2019.
During its Investor Day meeting, company officials will discuss Quest delivering a more than 2 percent revenue compound annual growth rate through "strategically aligned accretive acquisitions." It also will review its plans to fortify its relationships with hospital health systems, expanding access to innovation with advanced diagnostics, enhancing the firm's status as "the consumer lab of choice," among other initiatives, Quest said.