The first quarter of the year was hardly a heady one for the nation’s two largest laboratories, but there appears much room for improvement for the remainder of 2014. Pinched by lower reimbursements and bad winter weather, New Jersey-based Quest Diagnostics reported lower revenues for the seventh consecutive quarter. But this time it was also joined by North Carolina-based LabCorp, which has had a generally easier time of holding the line against revenue erosion. Altogether, Quest’s revenue of $1.75 billion was down 2.3 percent compared to the first quarter of 2013’s $1.79 billion. But LabCorp’s revenue was also down 1 percent, to $1.43 billion from $1.44 billion, taking a $42 million weather-related hit for the quarter. In a conference call with analysts, Quest Chief Executive Officer Steve Rusckowski said the unusually harsh winter weather cut into revenues by about 2 percent, or about $35 million. However, he was fairly upbeat for the remainder of the year. “While the slow start to this year clearly is a challenge, we are confident that progress we have made on growth initiatives, particularly as a result of acquisition activities, will enable us to meet our commitments,” he said, adding that he was committed to […]
The first quarter of the year was hardly a heady one for the nation’s two largest laboratories, but there appears much room for improvement for the remainder of 2014.
Pinched by lower reimbursements and bad winter weather, New Jersey-based Quest Diagnostics reported lower revenues for the seventh consecutive quarter. But this time it was also joined by North Carolina-based LabCorp, which has had a generally easier time of holding the line against revenue erosion.
Altogether, Quest’s revenue of $1.75 billion was down 2.3 percent compared to the first quarter of 2013’s $1.79 billion. But LabCorp’s revenue was also down 1 percent, to $1.43 billion from $1.44 billion, taking a $42 million weather-related hit for the quarter.
In a conference call with analysts, Quest Chief Executive Officer Steve Rusckowski said the unusually harsh winter weather cut into revenues by about 2 percent, or about $35 million. However, he was fairly upbeat for the remainder of the year.
“While the slow start to this year clearly is a challenge, we are confident that progress we have made on growth initiatives, particularly as a result of acquisition activities, will enable us to meet our commitments,” he said, adding that he was committed to “restoring growth.”
Test volumes for Quest were down 2.8 percent, and revenue per requisition was down by the same amount. Quest has made two major acquisitions in recent months, including Solstas Lab Partners and Summit Health, and the just announced acquisition of the hospital outreach operations for Steward Health Care.
“M&A will be a key component of growth” in the coming months, wrote analyst Michael Cherny of ISI Group in a recent report.
In addition to the acquisitions, which Rusckowski believes will boost revenues, he also said the addition of newly insured lives in late 2013 and early 2014 as a result of the rollout of the Affordable Care Act is also expected to generate growth.
Meanwhile, both companies also reported sharply lower net income. Quest’s was $104 million, down nearly 24 percent from the $136 million it reported during the first quarter of last year. Much of that drop—$27 million—it attributed to ongoing restructuring costs. LabCorp’s net was also down, to $113.5 million from the $147.2 million it reported in the year-ago quarter—a drop of 23 percent. Like Quest, LabCorp also took a charge for restructuring, to the tune of $7.6 million.
But LabCorp Chief Executive Officer Dave King was also upbeat. “We delivered a quarter with solid volume growth and strong earnings despite the greatest weather impact in our company’s history,” he said in a statement. The weather eroded LabCorp’s revenue even more than Quest’s, causing it to drop 2.9 percent overall. The company maintained its forecast of revenue growth of 2 percent in 2014, despite the down quarter. Test volumes were up 3.3 percent, but revenue per accession was down 3.3 percent.
Darren Lehrich, an analyst with Deutsche Bank, trimmed LabCorp’s full-year revenue estimates to $5.93 billion from $5.94 billion but still noted that would represent a 2.2 percent year-over-year growth. However, he continues to project the company will post 2015 revenues of nearly $6.2 billion, which would be a 5 percent gain.
As for both labs, Lehrich believes that the new patch in the sustainable growth rate payment formula recently approved by Congress and some near-term resolution regarding pricing for molecular testing should help their bottom lines further into the year.
Takeaway: Quest and LabCorp had downbeat first quarters, but both expect improvements before year’s end.
