Quest Diagnostics (NYSE: NYSE:DGX) reported nearly 5% base business revenue growth in the third quarter of 2023, despite facing challenges such as employee turnover. The company expressed optimism about its future growth, driven by its focus on advanced diagnostics and strategic acquisitions, especially within hospital outreach and smaller independent labs. Operational enhancements through automation and AI are also being implemented, with the Invigorate program set to deliver 3% annual productivity improvements and savings.
Key takeaways from the earnings call include:
- Quest Diagnostics completed negotiations for all strategic health plan renewals for the year.
- The company is focusing on growth by catering to the needs of core customers, including physicians, hospitals, and consumers.
- Quest Diagnostics is pursuing acquisitions to fuel growth, particularly in hospital outreach and smaller independent labs.
- Operational improvements are being implemented through automation and AI, with the Invigorate program on track to deliver annual productivity improvements and savings of 3%.
According to InvestingPro data, Quest Diagnostics has a market cap of 13.68B USD and a P/E ratio of 17.56. The company's revenue for the last twelve months (LTM2023.Q2) was 9488M USD, with a negative revenue growth of -10.34 %. Despite the challenges of employee turnover, the company remains optimistic and expects continued growth in the future.
Adjusted EPS for the company was reported as $2.22, compared to $2.36 in the previous year. Cash from operations for the year-to-date was $745 million, down from $1.38 billion in the prior year period, primarily due to lower operating income and timing of collections. Full-year 2023 guidance includes revenues expected to be between $9.19 billion and $9.24 billion, with base business revenues between $8.99 billion and $9.04 billion, and COVID-19 testing revenues of approximately $200 million.
InvestingPro Tips suggest that the management of Quest Diagnostics has been aggressively buying back shares and has raised its dividend for 12 consecutive years. The company is also known for maintaining dividend payments for 20 consecutive years, indicating a commitment to returning value to shareholders. For more insightful tips like these, consider subscribing to InvestingPro.
During the call, CFO Sam Samad discussed factors contributing to the decrease in gross margins in Q3, including lower revenues of $45 million, of which $15 million was due to a decline in COVID testing. Lower prices on COVID tests in Q3 compared to Q2 also impacted gross margins. Despite these challenges, Samad expressed confidence in achieving a 75 to 150 basis point improvement on operating margin over the next three years.
The company is also focusing on reducing leakage to high-cost labs and increasing their share of commercial payer spend. They are working closely with commercial payers to identify out-of-network labs and health system labs, and convince customers to use Quest Diagnostics. The growth of their Alzheimer's diagnostics and the reimbursement and pricing for the tests were also discussed.
The company is also partnering with ACO reach organizations and large physician groups that have taken on risk from Medicare Advantage plans. They emphasized the benefits of these relationships for the lab industry, as managing risk and costs incentivizes early care and diagnostics.
The call concluded with thanks to the Quest Diagnostics team and details on accessing the call's transcript and replay.
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