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Quest Diagnostics (DGX) Q4 Earnings Top Estimates, Margin Down

Quest Diagnostics Incorporated's DGX fourth-quarter 2022 adjusted earnings per share of $1.98 beat the Zacks Consensus Estimate by 4.8%. Adjusted earnings plunged 40.5% from the year-ago adjusted figure.

Certain one-time expenses, like the ones related to amortization expenses, certain restructuring and integration charges and others, were excluded from the quarter’s adjusted figures.

GAAP earnings came in at 87 cents per share, plunging 72.1% from the year-ago reported earnings per share (EPS).

For the full year, adjusted earnings were $9.95 per share, down 30.1% from the year-ago period’s levels. However, the figure beat the Zacks Consensus Estimate by 1%.

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Our model projected an adjusted EPS of $1.85 for Q4 and $9.79 per share for the full-year 2022.

Revenues

Reported revenues in the fourth quarter dropped 14.9% year over year to $2.33 billion. Revenues, however, exceeded the Zacks Consensus Estimate by 3.7%. While the company’s legacy base business saw a year-over-year improvement, COVID-19 testing revenues dropped significantly in the reported quarter.

The fourth-quarter revenue compares to our estimate of $2.23 billion.

Total revenues for 2022 were $9.88 billion, reflecting an 8.4% fall from the year-ago period. The figure beat the Zacks Consensus Estimate by 0.8%.

Our model projected full-year 2022 revenue of $9.78 billion.

Quarterly Details

Base Business (excludes COVID-19 testing) revenues were $2.15 billion in the reported quarter, up 6.3% year over year. COVID-19 testing revenues nosedived 74.6% in the fourth quarter to $184 million.

Diagnostic information services revenues in the quarter were down 15.3% on a year-over-year basis to $2.27 billion.

Volumes (measured by the number of requisitions) were down 11.2% year over year in the fourth quarter. Revenue per requisition dropped 5.1% year over year.

Margins

The cost of services during the reported quarter was $1.58 billion, down 8.3% year over year. However, gross profit dropped 26.1% to $758 million. The gross margin was 32.5%, reflecting a 490-basis point (bps) contraction from the year-ago figure.

Quest Diagnostics Incorporated Price, Consensus and EPS Surprise

 

Quest Diagnostics Incorporated Price, Consensus and EPS Surprise
Quest Diagnostics Incorporated Price, Consensus and EPS Surprise

Quest Diagnostics Incorporated price-consensus-eps-surprise-chart | Quest Diagnostics Incorporated Quote

 

Selling, general and administrative expenses rose 21.3% to $563 million in the quarter under review. Adjusted operating margin of 8.4% represented a 1212-bps contraction year over year.

Cash, Capital Structure and Solvency

Quest Diagnostics exited 2022 with cash and cash equivalents of $315 million compared with $872 million at the end of 2021. Cumulative net cash provided by operating activities at the end of 2022 was $1.72 billion compared with $2.23 billion in the year-ago period.

In the fourth quarter, the company repurchased 3 million shares for $435 million. In February 2022, Quest Diagnostics’ board of directors increased the size of its share repurchase program by $1 billion.  As of Dec 31, 2022, the company had $311 million available under its existing share repurchase authorization.

The company has a five-year annualized dividend growth rate of 7.37%.

Guidance

Quest Diagnostics has issued full-year 2023 guidance.

Full-year net revenues are estimated in the range of $8.83-$9.03 billion. The Zacks Consensus Estimate for the same is pegged lower at $9.02 billion.

Adjusted EPS is expected in the range of $8.40-$9.00. The Zacks Consensus Estimate for the metric is pegged at $8.55.

Our Take

Quest Diagnostics reported better-than-expected fourth-quarter earnings and revenues. During the reported quarter, the base business registered growth and the company has also ramped up investments to accelerate growth in the base business, particularly in the areas of advanced diagnostics and direct-to-consumer testing.

However, on a year-over-year basis, the company reported a decline on both fronts due to significantly lower COVID-19 testing demand. Margin contraction was a downside too.

Zacks Rank and Other Key Picks

Quest Diagnostics currently carries Zacks Rank #2 (Buy).

Some qother top-ranked stocks in the broader medical space that have announced quarterly results are Neogen Corporation NEOG, McKesson Corporation MCK and Hologic, Inc. HOLX.

Neogen, carrying a Zacks Rank #2, reported second-quarter fiscal 2023 adjusted EPS of 15 cents, beating the Zacks Consensus Estimate of loss of 8 cents per share. Revenues of $230 million outpaced the consensus mark by 0.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Neogen has an earnings yield of 2.5% compared with the industry’s 0.2%. NEOG’s earnings surpassed estimates in two of the trailing four quarters and missed the same in two, the average being 70.11%.

McKesson, having a Zacks Rank #2, reported third-quarter 2023 adjusted EPS of $6.90, which beat the Zacks Consensus Estimate by 8.8%. Revenues of $70.49 billion outpaced the consensus mark by 0.02%.

McKesson has a long-term estimated growth rate of 10.1%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same in two, the average being 4.79%.

Hologic reported first-quarter 2023 adjusted earnings of $1.07 per share, beating the Zacks Consensus Estimate by 18.9%. Revenues of $1.07 billion surpassed the Zacks Consensus Estimate by 9.5%. It currently sports a Zacks Rank #1.

Hologic has a long-term estimated growth rate of 15.2%. HOLX’s earnings surpassed estimates in the trailing four quarters, the average surprise being 46.08%.

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