Quest Diagnostics (DGX: 46.26 -0.44 -0.94%) reported second quarter fiscal 2010 earnings per share (EPS) of $1.07, beating the Zacks Consensus Estimate by a penny. The company had reported an EPS of $1.00 in the second quarter of fiscal 2009. Results for the previous quarter included benefits associated with an insurance recovery (5 cents), offset by charges related to debt repurchase and investment write-off (4 cents).Revenues for the quarter declined 1.4% year over year to $1.9 billion, driven by a decline in physician office visits. However, the EPS improved over the year-ago period due to the 3.3% reduction in the number of outstanding shares.
Clinical testing revenues, which account for most of Quest’s sales, declined 1.6% compared to the prior year. While clinical testing (measured by the number of requisitions) volume during the quarter declined 1.3%, revenues per requisition were lower by 0.3% compared to the year-ago period.
Operating margin for the reported quarter improved to 19.5%, with an operating income of $365.9 million compared to 18.9% in the year-ago period, with an operating income of $359.3 million. The primary reason for the improvement in margin was the 6.5% reduction in selling, general and administrative expenses, which brought down operating expenses.
Based on weak revenues in the second quarter, Quest Diagnostics lowered its outlook for 2010. The company expects earnings from continuing operations in the range of $3.90 – $4.00, down from the earlier guidance of $4.00-$4.20. Moreover, revenues are expected to decline by 1% compared to the earlier projection of 1%–2% growth. Quest Diagnostics expects operating margin to be around 18% and $1.1 billion – $1.2 billion. In addition, the company expects to incur $200 million in capital expenditures.
Quest Diagnostics is confident about its long-term potential. The company continues to remain focused on gene-based and other esoteric testing, which are generally reimbursed at higher levels than routine tests. However, the macro environment concerns us and is negatively impacting testing volume.Overall Summary: |  80%, Bullish 20%, Bearish | Trade Quality: | Upside 85%, V. GoodDownside 30%, Poor |
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