Quest Diagnostics (DGX) reported first quarter fiscal 2010 earnings per share (EPS) of 89 cents, unchanged from the year-ago period. However, excluding the impact of severe weather conditions and charges associated with workforce reduction Quest’s EPS came in at $1.00, beating the Zacks Consensus Estimate by a couple of cents.
Revenues for the quarter remained unchanged at $1.8 billion. However, the EPS improved compared to the year-ago period due to the 4.4% reduction in the number of outstanding shares.
Clinical testing revenues, which account for most of Quest’s sales, declined 0.4% compared to the prior year. While underlying volume in clinical testing (measured by the number of requisitions) during the quarter declined 2.6%, revenue per requisition increased 2.3% compared to the year-ago period. Quest witnessed increased demand for gene-based and esoteric tests.
Operating margin for the reported quarter declined to 16.5% with an operating income of $299 million compared to 17.8% in the year-ago period, with an operating income of $321 million. The primary reason for the reduction in margin was the charges associated with workforce reduction and the impact of bad weather.
Cash flow from operations during the quarter was $239 million, down from $273 million in the first quarter of 2009. Quest Diagnostics exited the quarter with $463.2 million in cash and cash equivalents, down from $534.3 million at the end of December 2009. During the quarter, the company repurchased $251 million of its common shares and made capital expenditures of $40 million.
Quest Diagnostics also updated its outlook for 2010. The company expects adjusted earnings from continuing operations in the range of $4.10 – $4.30, unchanged from the earlier guidance. However, the expected growth in revenues has been brought down to 1%–2% compared to the earlier level of 3%–4%. Operating margin is expected to be around 18.5% and $1.3 billion would be generated as cash flow from operations. In addition, Quest expects to incur $200 million in capital expenditures.
We have a Neutral recommendation on the stock.

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