Quest Diagnostics’ (DGX) fourth quarter earnings per share of 97 cents beat both the Zacks Consensus Estimate by a penny and the 87 cents reported in the year-ago period. Revenues for the quarter increased 2.7% to $1.8 billion.

Clinical testing revenues, which account for most of Quest’s sales, increased 2.3% compared to the prior year. For the full year, while revenues increased 2.8% to $7.5 billion, earnings per share recorded a rise of 20% to $3.88.

The growth in revenues was primarily driven by increased demand for innovative gene-based and esoteric tests, including cancer diagnostics. Among the latest initiatives, the company introduced a new blood test that identifies changes in DNA associated with colorectal cancer.

While underlying volume in clinical testing (measured by the number of requisitions) during the quarter declined 0.3%, revenue per requisition increased 2.6% compared to the year-ago period. Operating margin for the fourth quarter rose to 17.9% with operating income of $330 million compared to 17.6% in the year-ago period, with operating income of $317 million.

Cash flow from operations during the quarter was $360 million, down from $363 million in the fourth quarter of 2008. Quest Diagnostics exited the quarter with $534 million in cash, up from $254 million at the end of December 2008. With a strong cash balance, the Board of Directors increased the company’s share repurchase authorization by $750 million.

During the quarter, the company repurchased $150 million of its common shares and made capital expenditures of $50 million. During 2009, the company repurchased approximately 10 million shares of common stock for $500 million, fully utilizing its previous authorization.

In addition to posting a strong quarter, Quest Diagnostics provided its current outlook for 2010. The company expects earnings from continuing operations in the range of $4.10 – $4.30, in-line with the Zacks Consensus Estimate of $4.20. Revenue is expected to grow at about 3%–4% with operating margin expected to approach 19%. We have a Neutral recommendation on the stock.

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