Dive Brief:
- Quest Diagnostics raised and tightened its 2020 financial outlook on Thursday, citing sharper than expected recovery in its base business through August after routine test volumes took a big hit from lockdowns and stay-at-home orders earlier in the year.
- With just under a third of the year remaining, the lab network now predicts full-year revenue will total between $8.4 billion and $8.8 billion, up from a previous projection of $8 billion to $8.6 billion. Earnings per share guidance had been $5.66 to $7.66; now Quest foresees it landing between $7.42 and $8.92. Quest's stock was up 4% following the update.
- Quest's primary competitor, LabCorp, has continued to cite uncertainty from COVID-19 and has not given financial guidance since withdrawing its initial yearly outlook in April.
Dive Insight:
Confidence in COVID-19's unexpected boon to diagnostics manufacturers and lab companies during 2020 has only grown, but the pandemic's impact on the trajectory of routine testing has been less clear.
In the early months of the pandemic, lab networks like Quest and LabCorp warned that gains from coronavirus testing were offset by losses in typical business as healthcare visits and routine labwork declined sharply while consumers stayed home and adhered to distancing measures.
Since then, those two companies critical to U.S. coronavirus testing capacity have scaled their offerings and infrastructure, while also reporting that more patients have returned to seeking routine tests following springtime lows.
Still, the emergence of summer coronavirus hotspots in states like Arizona, California, Florida and Texas appeared poised to threaten that progress. But Quest's update Thursday shows those fears may have been unfounded; the company pinned the guidance raise entirely on positive changes in its base business. The estimated benefits from its COVID-19 business remain unchanged from previous projections, the company clarified.
To be sure, those base testing volumes are still below 2019 levels. Compared to the prior year, volumes were down in the high single digits in July and in the mid-to-high single digits in August on a percentage basis, Quest said Thursday.
That more or less aligns with data shared this week by UBS analysts from lab billing and revenue management company Xifin, which show overall routine testing volumes are still 11% below the pre-coronavirus baseline, with hospital-based testing down 6% and clinical testing down 12%. For comparison, routine testing was reportedly down 55% in the first half of April.
At the outset of 2020, Quest said it expected full-year revenues in the range of $7.8 billion to $7.96 billion, making the high end of its range shared Thursday about 10% above its highest expectation pre-coronavirus. LabCorp at the start of the year predicted growth of 4% to 6% over its $11.55 billion in 2019. Whereas Quest felt confident enough to offer guidance again when it reported second quarter results in July, LabCorp did not.
Quest expects cash from operations this year to be at least $1.45 billion, up from a previous projection of $1.25 billion. That cash could potentially support further M&A activity. Some analysts believe COVID-19's pressures on smaller labs could create acquisition targets for the lab giants able to capitalize on the current environment.
Indeed, LabCorp announced Thursday morning it acquired the clinical ambulatory lab business of one of Louisiana's largest health systems, Franciscan Missionaries of Our Lady Health System. The deal also expands LabCorp's footprint in Mississippi.
