Quest Diagnostics Raises 2025 Guidance

Key Points

• Q2 revenue of $2.76 billion and adjusted EPS of $2.62 beat analyst estimates.

• Management raised full-year 2025 guidance for both revenue and adjusted EPS, supported by strong operational cash flow and robust volume growth.

• Organic volume growth remained modest at 2.1%, with most of the overall 16.3% volume increase coming from acquisitions; revenue per requisition declined slightly by 0.4%.

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Diagnostic testing and information services provider Quest Diagnostics (NYSE:DGX) reported fiscal 2025 second-quarter results on Tuesday, July 22, that topped analysts' consensus expectations. Q2 revenue hit $2.76 billion and adjusted earnings per share (EPS) came in at $2.62. These results reflect improvements across sales, margins, and operating income, with management raising its outlook for both revenue and adjusted diluted EPS.

The quarter showed a strong contribution from acquisitions, balanced by modest organic volume growth and slight pressure on revenue per requisition.

Source: Quest Diagnostics. Note: Analysts' consensus estimates for the quarter provided by FactSet. YOY = Year over year. pp = percentage points.

Company Overview and Business Focus

Quest Diagnostics operates one of the broadest networks for diagnostic testing in the United States, touching both consumers and healthcare providers. The company processes millions of laboratory tests every year, supporting clinical decision-making for doctors, hospitals, health plans, and patients. Its market presence is substantial, with services reaching about one in three adult Americans annually.

The business has been concentrating on expanding its advanced diagnostics offerings, enhancing operational efficiency, and deepening its relationships across the healthcare system. These efforts are focused on maintaining a leadership position as the sector shifts towards precision medicine, digital healthcare, and value-based care. Key success factors include scale, innovation in clinical tests, automation, regulatory compliance, and robust payer and provider partnerships.

Q2 Financial and Operational Performance

Revenue jumped 15.2% year over year, driven by a blend of organic growth and acquisition activity. Organic revenue growth was 5.2%, while the remainder came from acquisitions, with recent deals expanding the company’s presence, particularly in hospital outreach and regional laboratory markets. The Diagnostic Information Services business, which covers the bulk of testing services, delivered revenue of $2.7 billion, making up about 97.7% of total revenue and representing growth of 15.7% year over year.

Volume was a significant driver, with total diagnostic requisition volume up 16.3%. However, organic volume increased by only 2.1%, indicating acquisitions were the primary source of expansion. This is a trend management attributed partly to the integration of acquired businesses with lower average revenue per test order.

Profitability also improved, with adjusted operating margin rising to 16.9% from 16.6% a year ago, a gain of 30 basis points. Adjusted operating income rose 17.3% to $466 million. Cash provided by operations was $544 million in the period, up 51.5 % from the same quarter last year, and year-to-date operational cash flow is up 67.1 % at $858 million. This improvement was supported not only by operational results but also by a one-time $46 million pre-tax gain related to a payroll tax credit.

During the period, integration and restructuring costs remained a factor. The company recorded a $24 million impairment charge related to a potential business exit. Amortization expenses rose as well. Interest expense increased to $67 million.

Quest Diagnostics continues to invest in productivity enhancements through projects like Invigorate, which uses automation and digital technologies to improve operational efficiency and reduce costs. Capital expenditures reached $108 million for the quarter and $225 million year to date.

Innovation, Products, and Strategic Initiatives

Advanced Diagnostics™ is a key area for Quest Diagnostics, encompassing molecular diagnostics, oncology testing such as the Haystack Oncology MRD assay, and neurology solutions. These product lines use next-generation sequencing and artificial intelligence (AI) tools. Management highlighted that demand for these solutions, such as Alzheimer’s disease blood tests and cardiometabolic risk assays, continues to grow at a rapid rate, with $900 million in sales from advanced diagnostics recorded in 2024.

Digital and automation investments are another major focus, including projects to streamline lab workflows and advance the company’s digital engagement offerings. For example, the Invigorate cost-efficiency program and initiatives like Project Nova aim to modernize order-to-cash processes. The collaboration with Alphabet's Google Cloud is set to centralize data management and enable AI-powered support tools for patients and clinicians, increasing productivity and data quality.

Quest Diagnostics has expanded its relationships with enterprise clients and health plans. Being added to UnitedHealth Optum’s Preferred Lab Network brought access to over 85,000 physicians. The company has also secured lab testing partnerships, such as with Fresenius Medical Care, covering dialysis centers and potentially boosting volume in future periods.

Looking Ahead: Guidance and Investor Focus

Management raised its outlook, now expecting net revenue between $10.80 billion and $10.92 billion, up from the prior guide of $10.70 billion to $10.85 billion. Adjusted EPS guidance likewise increased to a range of $9.63 to $9.83, compared to $9.55 to $9.80 previously. Estimated full-year cash provided by operations is now expected to be approximately $1.55 billion, about $50 million higher than previously projected. Capital expenditures are planned to be approximately $500 million.

Investors should monitor the sustainability of margin improvements, as further productivity gains and operational efficiency are prioritized. Attention is also warranted on the integration of acquired businesses, the performance of advanced diagnostics, and trends in revenue per requisition, and the company continues to focus capital deployment on strategic acquisitions, technology upgrades, and maintaining financial flexibility.

Note: Revenue and net income are presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Quest Diagnostics. The Motley Fool has a disclosure policy.