Revenue was up just slightly at Quest Diagnostics as the company restructures to focus on its core business of diagnostic information services.
The Madison, N.J.-based lab giant reported $1.9 billion in revenue in the third quarter ended Sept. 30, up 0.3% or 2.1% when excluding revenue from Celera and Focus Diagnostics. Focus, an immunodiagnostic and molecular diagnostic products business, was sold to DiaSorin, an Italian diagnostics company, in May. Celera, which sold genetic-sequencing products, was wound down as a result of that deal after Quest decided to stop selling diagnostic products and focus on services.
On paper, third-quarter profits took a 43.9% decrease to $192 million, mainly because $300 million in gains were recorded when Focus was sold during the third quarter last year. There were also gains at that time related to Quest's participation in Q2 Solutions, the company's clinical trials joint venture with Quintiles Transnational Holdings. On an adjusted basis, net income rose roughly 5.8% to $182 million.
This quarter, Quest incurred about $18 million in restructuring charges related to workforce reductions and professional fees. Those charges were nearly half as much as the company incurred during the same time last year.
CEO Steve Rusckowski mentioned that the company is optimistic about a number of recent partnerships with other healthcare organizations, including IBM Watson Health for genomic sequencing for tumor samples and Optum, the UnitedHealth Group subsidiary, which will handle Quests' revenue-cycle services. “We believe being a company that works with others in healthcare is an important part of what we do,” he said.
Quest also continues to engage hospitals in discussions about taking over their lab services, Rusckowski said. In May, Quest inked a lab management deal with HealthOne, a Denver-area system owned by Hospital Corporation of America.
“The C-suites of integrated delivery systems are quite interested in anything that can make them more efficient,” Rusckowski said. The HealthOne deal was the company's first partnership with an HCA affiliate.
Rusckowski also said the company has opened 12 patient service centers in Safeway grocery stores in five states. Quest's business with Safeway has been a bragging point following the grocery chain's breakup with Theranos. Some thought the struggling lab startup could have taken business from Quest and Labcorp. Theranos founder Elizabeth Holmes' promised her company could conduct tests with just a few drops of blood, and at lower prices. But then, federal regulators deemed its lab equipment unreliable.
Quest reported nine-month revenue of $490 million, up 0.2% on a reported basis and 2.8% when excluding revenue from Focus and Celera. Profits were $490 million, down 6% from last year, affected by $19 million in after-tax charges largely related to restructuring and the early retirement of debt. Those charges were partially offset by gains from the Focus sale and escrow recovery from another acquisition, Quest said.
Quest expects revenue of about $7.51 billion in fiscal 2016, up 0.5% from the year before and 2.5% when excluding Focus and Celera. This is a more precise estimate, yet slightly less optimistic when compared to previous guidance of between $7.47 billion and $7.54 billion. It's still higher than 2015 revenue of $7.32 million, which accounts for the Focus, Celera and the Q2 venture.
Diluted earnings per share are expected to be between $4.47 and $4.52 for the year, compared to previous guidance of $4.18 and $4.33. Rusckowski said guidance released Thursday reflects a negative impact from Hurricane Matthew, which hit the Southeast earlier this month.
