Quest Diagnostics' profits soared in the first quarter as the company doubled down on its core business of diagnostic lab services.
The Madison, N.J.-based company reported profits of $102 million, up 67%. The strong numbers come as the company embarks on a number of major lab partnerships with hospitals, including a lab management deal with Barnabas Health and the acquisition of the lab outreach business of Hartford HealthCare.
Revenue rose only 1% to $1.9 billion, but that includes the loss of Quest's clinical trials testing business, a result of a joint venture with Quintiles in July. Excluding that impact, revenue rose 3.6%.
Profit growth was boosted by a 30% reduction in non-operating costs, including expenses related to debt retirement and other refinancing. Quest is in the process of simplifying its organization and redeploying capital.
CEO Steve Rusckowski said during a conference call with investors that the hospital deals with Barnabas and Hartford HealthCare contributed to growth in the first quarter and the pipeline for similar deals “remains strong and encouraged by growth and opportunities.” Quest has made these types of deals a priority to gain market share while rival LabCorp has focused on acquisitions that shore up its technology and, in some cases, expand its business beyond diagnostic labs.
The CMS announced last year a $5 billion reduction in lab test fee payments, drawing concern from lab companies and hospital-based labs. Rusckowski said Quest remains “optimistic that together industry and government can still achieve a reasonable outcome.”
Rusckowski also noted that Quest has two tests for Zika virus that are awaiting approval. He said he couldn't comment on a time frame for approval, but expects the services to be successful if approved.
Quest expects 2016 revenue to be between $7.52 billion and $7.59 billion, up 1.5% to 2.5% over last year, excluding the impact of the lost revenue from the clinical trials testing business. Adjusted diluted earnings per share are expected to be between $5.02 and $5.17.
Quest said it will provide an update on revenue guidance after it closes the sale of its immunodiagnostic and molecular diagnostic products business, a part of its Focus Diagnostics subsidiary, to Italy-based DiaSorin for $300 million. The deal includes assays and other products made by the Focus subsidiary, but not laboratories operating under the Focus brand.
