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Quest Diagnostics (DGX) Q3 Earnings Top Estimates, View Up

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Quest Diagnostics Incorporated’s (DGX - Free Report) third-quarter 2021 adjusted earnings per share of $3.96 surpassed the Zacks Consensus Estimate by 33.8%. Adjusted earnings however registered a 7.9% decline from the year-ago adjusted figure of $4.31 per share.

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

GAAP earnings from continuing operations came in at $4.02 per share, marking a 2.9% decline from the year-ago period.

Reported revenues in the third quarter dropped 0.4% year over year to $2.77 billion. The same however beat the consensus estimate by 12.6%.

Quarterly Details

Diagnostic information services revenues in the quarter edged down 0.2% on a year-over-year basis to $2.70 billion.

Volumes (measured by the number of requisitions) improved 5.3% year over year in the third quarter (up 3.2% organically). Revenue per requisition, however, dropped 5.4% year over year.


Cost of services during the reported quarter was $1.67 billion, up 5.7% year over year. Gross margin was 39.8%, reflecting a 349 basis points (bps) contraction from the year-ago figure.

Selling, general and administrative expenses increased 7.8% to $427 million in the quarter under review. Adjusted operating margin of 24.4% represented a 467-bps contraction year over year.

Cash, Capital Structure and Solvency

Quest Diagnostics exited the third quarter of 2021 with cash and cash equivalents of $987 million compared with $560 million at the end of the second quarter. Cumulative net cash provided by operating activities through the end of the third quarter was $1.75 billion compared with $1.46 billion in the year-ago period.

Till the third quarter, the company has repurchased 12.5 million shares for $1.6 billion. At the end of the third quarter, the company had $1.3 billion available under its existing share repurchase authorization.

2021 Guidance

After raising its full-year projection in September, Quest Diagnostics further increased the same on its third-quarter earnings call.

Full-year net revenues are currently estimated in the range of $10.45-$10.60 billion, up from the earlier band of $9.84-$10.09 billion, indicating an improvement of 10.7-12.3% (earlier growth expectation was 4.3-6.9%) from 2020. The Zacks Consensus Estimate of $10.15 billion (indicating a 7.5% expected growth from 2020) is below the guided range.

The adjusted earnings per share (EPS) guidance too has been raised to the range of $13.50-$13.90 from the previous projection of $11.65-$12.35. The Zacks Consensus Estimate of earnings of $12.32 per share also remains below the updated guidance.

Our Take

Quest Diagnostics reported better-than-expected third-quarter adjusted earnings and revenues. The year-over-year decline in the figures was due to an unfavorable comparison from the very-strong year-ago quarter. The company also noted that in late summer it experienced some softness in the base business across the country but it rebounded in September. The year-over-year contraction in margins is also concerning.

The increase in guidance for the remainder of the year is based on higher-than-anticipated COVID-19 volumes as well as the continued rebound in base business despite rising labor costs and inflationary pressure. According to the company, the growing momentum of the base business positions it to deliver a strong 2022 outlook that the company announced at its March 2021 investor day.

Zacks Rank & Other Key Picks

Currently, Quest Diagnostics carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader medical space include STAAR Surgical Company (STAA - Free Report) , Omnicell, Inc. (OMCL - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) .

STAAR Surgical sports a Zacks Rank #1 (Strong Buy). It is expected to report third-quarter 2021 adjusted EPS of 16 cents, implying year-over-year growth of 14.3%. The Zacks Consensus Estimate for revenues is pegged at $57.1 million, implying a 22.6% year-over-year increase. You can see the complete list of today’s Zacks #1 Rank stocks here.

Omnicell carries a Zacks Rank #2. It is expected to report third-quarter 2021 adjusted EPS of 91 cents, implying year-over-year growth of 51.7%. The Zacks Consensus Estimate for revenues is pegged at $283.8 million, implying a 32.8% year-over-year improvement.

West Pharmaceutical carries a Zacks Rank #2. It is expected to report third-quarter 2021 adjusted EPS of $1.82, implying year-over-year growth of 58.3%. The Zacks Consensus Estimate for revenues is pegged at $684.7 million, implying 24.9% year-over-year growth.

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