Quest Diagnostics Incorporated (DGX) Earnings & Analysis

Latest quarter

Quest Diagnostics reported third-quarter revenue of $3.1 billion, above the $3.0 billion consensus, and adjusted earnings per share of $3.00, above the $2.85 consensus. Revenue rose from $2.8 billion a year earlier, while reported diluted EPS increased to $2.78 from $2.16.

The company’s filing said Diagnostic Information Services revenue grew 10.2%, principally driven by organic growth. Quest attributed much of the 14.5% increase in requisition volume to its Corewell Health and Fresenius Medical Care relationships. The filing said revenue per requisition fell 4.2% because those relationships included a greater proportion of routine tests; excluding their mix, it rose 1.7%, primarily because of more tests per requisition.

Quest reported an operating margin of 15.5%, compared with 13.7% a year earlier. CFO Sam Samad said adjusted operating margin rose to 16.7% from 16.3%, as organic revenue growth was partly offset by wage increases and the Corewell and Fresenius mix. Quest reported free cash flow of $445.0 million, compared with $419.0 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Jim Davis said physician-channel revenue grew at a high-single-digit rate in the third quarter, while hospital revenue grew by double digits, helped by volume from Corewell Health. He said Quest’s consumer health growth rate was expected to exceed 30% for the full year. Davis also said a service allowing Apple Health app users to order tests was in beta testing and expected to launch fully later in the year.

Asked about uptake, Davis said he could not forecast it before launch. CFO Sam Samad said consumer-business margins were above Quest’s overall operating margin. On pricing, Samad said third-quarter unit reimbursement was generally flat, and that the increase in revenue per requisition excluding Corewell and Fresenius was driven primarily by more tests per requisition.

Davis said Quest extended automated specimen processing to three drug-monitoring laboratories during the quarter. He said Project Nova, which is intended to improve provider and patient experiences, had moved from design to build, with deployment at the first laboratory scheduled for fall 2027. Samad said Quest expects a slight increase in Nova investment in the fourth quarter compared with the third.

Analysts pressed executives on potential PAMA reimbursement cuts and offsets. Samad estimated an impact of roughly 1% of revenue in 2027 and said Quest would seek efficiencies in infrastructure and support functions. Davis said the company was still budgeting and could not quantify the offset; he also said Quest was advocating for the RESULTS Act to reform rate setting.

Asked about billing collections, Samad said patient price concessions were flat year over year and bad debt was broadly in line with historical levels. He attributed much of the rise in days sales outstanding to a mix of client-billed business with longer payment terms and fewer banking days.

Separately, Samad said Quest had learned of unauthorized access to a test-ordering system used by certain clients. He said the incident had not materially disrupted operations or Quest’s ability to serve physicians and patients; Quest said it had notified law enforcement and was investigating.

Guidance

Quest raised and narrowed its FY2026 revenue outlook to $12.065 billion–$12.105 billion, according to Sam Samad. He also raised the adjusted EPS range to $11.25–$11.35 from the prior $11.05–$11.25, and the reported EPS range to $10.21–$10.31 from $9.97–$10.17.

Quest increased its operating cash flow expectation to approximately $1.9 billion from approximately $1.8 billion. Samad said the company now expects interest expense to be lower than in 2025.