LabCorp, Quest Post Big Earnings Growth through First Half of Year

LabCorp and Quest Diagnostics reported significant jumps in profitability during the second quarter of 2016 and throughout the first half of the year.

North Carolina-based LabCorp, the larger of the two entities, reported net income of $198.5 million on revenue of $2.43 billion for the quarter ending June 30. That compares to a net of $170.1 million on revenue of $2.2 billion for the second quarter of 2015. Earnings per share were $2.31, which beat estimates by a penny.

LabCorp's diagnostics division saw revenue grow 5.4 percent, to $1.66 billion. Test volumes grew 2.1 percent. Covance performed even better, up 12.2 percent to $722.4 million.

Organic growth of business was an impressive 6.4 percent compared to a year ago, across both the LabCorp and Covance books of business.

The company repaid $339 million worth of debt during the quarter, Chief Financial Officer Glenn Eisenberg told analysts during a conference call, although the company still has $6.1 billion in debt.

As a result of the strong results, LabCorp increased its calendar 2016 guidance. It now forecasts revenue growth of 9.5 percent to 10.5 percent, up from the previous guidance of 7.5 percent to 9.5 percent. It narrowed its earnings guidance on the low end, but did not increase it.

Deborah Keller, Chief Executive Officer of the Covance drug development division, told analysts that the merger between the two companies has paid significant dividends. "Clients have really been able to see and understand the value proposition of the combined companies. We are differentiated, and they see that," she said. "Since we've made the announcement, we've recorded over $200 million in clinical orders, where the LabCorp data actually played a key role in the win."

For the first half of 2016, the company reported net income of $359 million on revenue of $4.7 billion. LabCorp had net income of $173.5 million on revenue of $4 billion.

LabCorp CEO Dave King told analysts that the company was well-positioned to take advantage of a bundled payment initiative for cardiac care recently announced by the Centers for Medicare & Medicaid Services. "In the inpatient setting, I continue to believe that these types of bundled structures will encourage hospitals to look at how they can reduce the costs of the components of the bundle, and on the laboratory and the diagnostics side, that obviously puts us in a very strong competitive position," he said.

Meanwhile, New Jersey-based Quest Diagnostics also posted a healthy second quarter, even though growth was flat. It reported net income of $209 million on revenue of $1.9 billion, compared to net income of $129 million on revenue of $1.93 billion for the year-ago quarter. The company said revenue was flat primarily due to divestitures so it could focus on diagnostic information services. Quest reaped $34 million in after-tax profit for the sale of its Focus Diagnostics division during the quarter. Earnings per share were $1.34, which beat estimates by two cents.

"We had another good quarter of earnings growth and a solid first half," said Quest CEO Steve Rusckowski. "We've refocused our business on diagnostic information services, and without clinical trials or diagnostic products businesses, reported revenues decreased 1 percent, but we grew equivalent revenues more than 2 percent in the quarter. Our expanding hospital relationships, including the CLP acquisition and Barnabas Health (outreach) agreement, have been key contributors to growth this year, and our latest agreement with HCA's HealthONE system will help continue the momentum."

In a call with analysts, Rusckowski said that drug monitoring services also continued to be a strong area of growth for the company. Revenue from Quest's diagnostic information services revenues grew 2.2 percent, while test volumes grew 1.9 percent compared to the year-ago quarter. For the first six months of 2016, Quest reported net income of $324 million on revenue of $3.8 billion, compared to net income of $199 million on revenue of $3.8 billion for the first half of 2015.

Quest adjusted its revenue guidance downward, to a range of $7.47 to $7.54 billion from $7.52 billion to $7.59 billion. Its forecast for earnings per share remained unchanged at $5.02 to $5.17 per share.

Takeaway: LabCorp and Quest Diagnostics continue to post healthy profits, although the latter is not in a growth mode.