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QD

QUEST DIAGNOSTICS INC (DGX)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered broad-based strength: revenue $2.761B (+15.2% y/y), adjusted EPS $2.62 (+11.5% y/y), with reported EPS $2.47 (+21.7% y/y); operating margin expanded to 15.9% reported and 16.9% adjusted .
  • Both revenue and EPS beat Wall Street consensus: revenue $2.761B vs $2.726B* and adjusted EPS $2.62 vs $2.57*; DGX also beat in Q1 2025 (for context) and guided higher for FY25 revenue and EPS .
  • Guidance raised: FY25 revenue to $10.80–$10.92B (from $10.70–$10.85B), reported EPS to $8.60–$8.80, adjusted EPS to $9.63–$9.83, CFO reiterating operating margin expansion vs prior year; cash from ops lifted to ~$1.55B, capex maintained at ~$500M .
  • Catalysts: accelerating advanced diagnostics (e.g., AD-Detect updates, Haystack MRD), new payer access (Elevance, Centene), and M&A (LifeLabs contribution ~8% of the 10% M&A revenue growth), along with automation/AI productivity gains .

Values retrieved from S&P Global.*

What Went Well and What Went Wrong

What Went Well

  • Strong revenue and margin execution: total revenue +15.2% y/y to $2.761B; adjusted operating margin up to 16.9% (from 16.6% y/y), driven by acquisitions and organic growth; reported operating margin expanded to 15.9% .
  • Management execution and strategic traction: “We delivered a strong second quarter… revenues growing 15.2% which includes 5.2% organic revenues… adjusted EPS growth of 11.5%,” with productivity gains from automation/digital technologies .
  • Advanced diagnostics momentum: double-digit growth across cardiometabolic, autoimmune, brain health (launch of AB4240/PTAU217 panel), and oncology (Haystack MRD adoption affirmed by NEJM study); consumer channel surpassed one million orders on QuestHealth since 2022 .

What Went Wrong

  • Revenue per requisition declined -0.4% y/y (mix effect from LifeLabs), partially offset by organic Rev/Rec +3.3% from more tests per requisition and mix; wage inflation remained a modest headwind .
  • Higher interest expense pressured EPS vs prior year; management noted tariff impacts (Europe/China) in Q2 and expects some negative impact in Q3/Q4, though manageable within guidance .
  • Non-GAAP adjustments include a $24M impairment tied to potential business exit and reliance on a $46M CARES Act payroll tax credit in Q2, highlighting one-offs in quarter results .

Financial Results

Quarterly P&L vs Prior Periods and Estimates

MetricQ4 2024Q1 2025Q2 2025Q2 2025 vs Est.
Revenue ($USD Billions)$2.621 $2.652 $2.761 $2.726*
Reported Diluted EPS ($)$1.95 $1.94 $2.47 —
Adjusted Diluted EPS ($)$2.23 $2.21 $2.62 $2.57*
Reported Operating Margin (%)13.8% 13.0% 15.9% —
Adjusted Operating Margin (%)15.6% 15.3% 16.9% —

Values retrieved from S&P Global.*

Year-over-Year Comparison (Q2 2025 vs Q2 2024)

MetricQ2 2024Q2 2025
Revenue ($USD Billions)$2.397 $2.761
Reported Diluted EPS ($)$2.03 $2.47
Adjusted Diluted EPS ($)$2.35 $2.62
Reported Operating Margin (%)14.8% 15.9%
Adjusted Operating Margin (%)16.6% 16.9%

Segment and KPI Detail

Segment/KPIQ4 2024Q1 2025Q2 2025
Diagnostic Information Services Revenue ($USD Billions)$2.556 $2.589 $2.699
Requisition Volume Growth (%)+13.9% +12.4% +16.3%
Organic Requisition Volume Growth (%)+0.6% -0.9% +2.1%
Revenue per Requisition (y/y change, %)+0.2% +0.3% -0.4%
Organic Revenue per Requisition (y/y change, %)——+3.3% (mix/tests per rec)
Cash from Operations ($USD Millions)$464 $314 $544 (YTD $858)
Capital Expenditures ($USD Millions)$123 $117 $108 (YTD $225)

Non-GAAP Adjustments (Q2 2025)

  • Key items impacting Q2 adjusted results: $46M CARES Act payroll tax credit; $24M impairment related to potential exit of a business; amortization ($39M); restructuring/integration ($7M); ETB offset ($3M) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Revenues ($USD Billions)FY 2025$10.70–$10.85 $10.80–$10.92 Raised
Net Revenues Increase (%)FY 20258.4%–9.9% 9.4%–10.6% Raised
Reported Diluted EPS ($)FY 2025$8.62–$8.87 $8.60–$8.80 Slightly Lower (midpoint)
Adjusted Diluted EPS ($)FY 2025$9.55–$9.80 $9.63–$9.83 Raised
Cash from Operations ($USD Billions)FY 2025~$1.50 ~$1.55 Raised
Capital Expenditures ($USD Millions)FY 2025~$500 ~$500 Maintained
Operating MarginFY 2025Expand vs PY (qualitative) Expand vs PY (qualitative) Maintained (directional)
Dividend per Share ($)Quarterly$0.80 (increased from $0.75 in Jan) $0.80 (declared Aug 13, 2025) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
AI/Automation/ProductivityDeployed automation and AI across labs and admin to improve quality and productivity .Continued productivity focus; reaffirmed margin expansion framework .Front-end automation installed in ~6 sites; automated accessioning pilot completed; rollouts into 2026; targeting ~3% annual cost savings via Invigorate .Execution accelerating
Advanced Diagnostics (AD-Detect, MRD)Expanded AD-Detect and launched H5 avian flu test .Highlighted advanced diagnostics mix in growth .Double-digit growth; launched AB4240/PTAU217 blood panel; Haystack MRD adoption progressing; NEJM study supported sensitivity/specificity .Strong momentum
Payer Access/UtilizationAccess to >90% of in-network lives; acquisitions support reach .Q1 weather headwinds, rebound in March; expanded access (Elevance, Centene) .Strong Q2 utilization; steady ramp from Elevance/Centene (>1M lives); weather catch-up effects; stable into Q3 .Improving/stable
Tariffs/MacroNot emphasized .—Tariff impacts absorbed; Q3/Q4 negative impact manageable; 80% supply spend US-based; <1% China; contracts mitigate risk .Manageable headwind
Policy/Regulatory (PAMA)——Pursuing PAMA reform or sixth delay; potential ~$100M pricing impact if no fix; partial offsets planned .Policy watch
Consumer/Functional Medicinequesthealth.com expanded (~135 tests) .—Consumer channel >1M orders since 2022; functional medicine driving double-digit growth and tests per requisition .Growing
R&D/Public Health Readiness——Launched Oropouche PCR test under CDC contracts; expanding brain health testing (Fujirebio pTau217/Aβ IVD) .Portfolio expansion

Management Commentary

  • “Through continued execution of our strategy, we delivered a strong second quarter… Demand for our innovative clinical solutions and expanded business from enterprise accounts complemented growth from acquisitions. We also realized productivity gains as we continued to deploy automation and digital technologies across our operations.” — Jim Davis, CEO .
  • “Adjusted operating income was $466M, or 16.9% of revenues… The increase… was due to recent acquisitions and organic revenue growth, partially offset by wage increases… Our updated EPS guidance assumes that we can absorb the impact of tariffs currently in place, primarily in Europe and China.” — Sam Samad, CFO .
  • “We are deploying innovative automation and AI technologies… We plan to roll out both solutions across our lab network through the rest of the year and into 2026.” — Jim Davis .
  • “Organic revenue per requisition was up 3.3%… driven primarily by an increase in the number of tests per requisition and test mix.” — Sam Samad .

Q&A Highlights

  • Washington/policy backdrop: management sizes worst-case volume impact at ~30–40 bps in 2026 from ACA exchange subsidy changes; minimal Medicaid impact expected in 2026–2027 .
  • PAMA: dual track (reform or sixth delay); risk quantified at ~$100M pricing impact without a fix; some mitigation actions but not majority offset .
  • Modernization investments: ~$0.20 EPS drag expected in 2025 timing to 2H; despite this, full-year operating margin expansion expected .
  • Tariffs: Q2 impact absorbed; anticipate Q3–Q4 negative impact but manageable; supply chain largely US-based and contracted; <1% China exposure .
  • LifeLabs acquisition: contributed ~8% out of 10% total M&A growth; integration tracking toward margin parity over a couple of years; procurement and operational synergies realized .
  • Utilization and mix: tests per requisition driving organic Rev/Rec; functional medicine and employer businesses stabilizing (pricing actions) .

Estimates Context

MetricQ1 2025 Estimate*Q1 2025 ActualQ2 2025 Estimate*Q2 2025 Actual
Revenue ($USD Billions)$2.630*$2.652 $2.726*$2.761
Adjusted Diluted EPS ($)$2.15*$2.21 $2.57*$2.62
Primary EPS - # of Estimates14*—15*—
Revenue - # of Estimates12*—12*—

Values retrieved from S&P Global.*

Implications: DGX posted clean beats on both revenue and adjusted EPS for Q1 and Q2, and raised FY guidance, suggesting upward estimate revisions for FY25 revenue and adjusted EPS are warranted; qualitative margin expansion commentary supports positive EPS trajectory .

Key Takeaways for Investors

  • Quality beat-and-raise quarter: revenue and adjusted EPS beat, FY25 guidance raised, with margin expansion intact despite modernization/tariff headwinds — supportive of near-term positive estimate revisions and stock momentum .
  • Advanced diagnostics mix and payer access are sustainable growth drivers, increasing tests per requisition and supporting organic Rev/Rec; functional medicine and consumer channels add incremental tailwinds .
  • M&A (LifeLabs) is accretive to top line and progressing toward enterprise margin parity, while automation/AI (Invigorate) underpins ongoing productivity gains — key medium-term EPS lever .
  • Policy watch: PAMA outcome remains a risk (~$100M), but management is pursuing reform/delay and planning partial offsets; monitor legislative developments into year-end .
  • Tariffs manageable within guidance: supply chain resiliency and favorable contracts limit impact; watch potential August changes but risk appears contained .
  • Cash generation strengthening: YTD cash from ops up 67% to $858M, FY25 CFFO raised to $1.55B, supporting capex ($500M) and dividend continuity ($0.80/qtr) .
  • Trading setup: With consistent beats, raised guide, and positive narratives on mix/productivity, DGX screens as a defensive compounder; near-term sensitivity to policy headlines (PAMA/ACA) warrants position-sizing discipline.

Additional Relevant Press Releases (Q2 context)

  • Offering FDA-cleared Fujirebio Lumipulse plasma pTau217/Aβ blood test for Alzheimer’s disease, augmenting brain health diagnostics .
  • Launching Oropouche virus PCR test under CDC contracts, evidencing public health preparedness capabilities .

All document claims cited from Quest Diagnostics press releases, 8-K, and Q2 2025 earnings call transcript: . Values retrieved from S&P Global.*