Quest Diagnostics (DGX)

Quest Diagnostics (DGX) reported that profit grew 17% in the second quarter as the diagnostic testing company improved margins and revenues. Cost cutting efforts, positive revenue mix, and the increased Medicare fee for lab testing contributed to higher prices and improved margins.

A 4.6% increase in pricing per test drove the 4% revenue growth in clinical testing, which accounts for about 91% of total revenues. Testing volume declined 0.6% year-over-year as drug-abuse testing tumbled 24%. This drop-off was expected since drug-abuse testing is highly sensitive to hiring and companies are ordering fewer drug tests for new employees. Excluding drug-abuse testing, testing volume grew 1.1%.

Quest raised its 2009 earnings projections citing increased demand for testing for cancer, sexually transmitted diseases, and allergies. We can’t expect pre-employment drug screening to rebound in the near-term, but at least we know that Quest can grow revenues and profits in a difficult environment.

--

Peter J. Lazaroff