Quest warns reimbursement pressures, test volume declines will dampen Q3

Quest Diagnostics ($DGX) warns its 2013 third quarter sales and earnings will reflect some downward trends, driven in part by ongoing reimbursement pressures from public and private payers, as well as lower test volume. New acquisitions helped soften the declines, but the company cautions revenue did not meet expectations.

Full earnings won't be out until Oct. 17. A preview released by the New Jersey diagnostics company shows results that are pretty mixed.

Expectations are that revenue from continuing operations will reach nearly $1.8 billion for the third quarter, almost 2% lower than the same period last year. Quest also predicts $1.02 in adjusted earnings per share from continuing operations, a big dip from $1.15 generated over the 2012 third quarter. On the other hand, reported diluted earnings per share from continued operations should reach $2.66, compared to 98 cents over the same period a year ago. Quest said the number reflects gains, in part, from selling off its share of Johnson & Johnson's ($JNJ) cancer drug ibrutinib to Royalty Pharma for $485 million.'

Excluding 2013 acquisitions, Quest said test volume for Diagnostic Information Services dipped 1% over the same period in 2012. Revenue for the division, also factoring out recent acquisitions, dropped 3.3% during the quarter. A small part of that decline stemmed from increased coverage denials for some molecular tests, Quest noted.

On the plus side, Quest said that its Diagnostics Solutions revenues grew 4% during the quarter, and its "Invigorate" restructuring program remains on track. What's more, acquisitions contributed about 2% to Quest's Q3 growth.

Quest is in an ongoing push to revamp. "Invigorate" calls for up to 600 job cuts, a reorganization of business units and managerial changes with a goal to rebound sluggish revenue and save $500 million in 2013. The company also has a long-term goal to grow as much as 2% a year through strategic acquisitions.

So far this year, Quest has snatched up UMass Memorial Medical Center's clinical and anatomic pathology outreach laboratory business, Dignity Health's lab-related clinical outreach operations in California and Nevada, and Humana/Concentra's toxicology and clinical laboratory business. On Oct. 7, Quest announced it was snatching up ConVerge Diagnostic Services, a Peabody, MA-based laboratory testing services-company with patient service centers in Massachusetts, New Hampshire and Connecticut.

- read the release

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