Quest Diagnostics Earnings Call Insights: Higher Share Repurchases and Back-End Loaded Guidance
Higher Share Repurchases
Tom Gallucci – Lazard Capital: First, I was just wondering within the guidance, Bob, what do you have assumed for buybacks and the incremental portion of cost savings?
Robert A. Hagemann – SVP and Chief Financial Officer: Tom, we don’t provide specific guidance on buybacks but what you can assume is that we are going to meet our commitment of returning the majority of free cash flow to shareholders through obviously the increase in the dividend and remainder through share repurchases and that share repurchases this year should be higher than they were in 2012, with our delivering behind us we feel as though we’ve got much more flexibility now to return cash to shareholders. The other part of the question was with respect to the Invigorate savings. While again we are not giving specific guidance in terms of what that will be each quarter. At the end of this past year we had realized about a third of the $600 million in run rate savings we expect. You should expect that we are going to be in the range of about two-thirds of that as we exit 2013.
Tom Gallucci – Lazard Capital: Final one. Just on volumes, what do you peg the market growth as and obviously it would seem that you are maybe losing a little bit of shares. So, could you just give us a little bit more color on some of the headwinds that you are seeing and you mentioned before expecting sales improvement as you go through 2013, besides the EV comps tell us what are you doing there and what sort of visibility you have on improving that volume or market share?
Stephen H. Rusckowski – President and CEO: First of all, what we shared on Investor Day is we believe retrospectively is this market has been growing around 4%. Now, that is discussion around where the volume is going and some of the volume being picked up by hospitals in their outreach activities and they’re picking up volume, but also picking up value share in the marketplace. But we have been not growing at that market rate, so what we have said is we have lost share and therefore what we’re doing with restore growth is to start by improving our performance and growing the business and getting better to growing with the marketplace. With that said, what we saw in the fourth quarter is continued sluggish market conditions. We did not see an improvement in volumes and actually independent of Sandy it continued throughout the quarter as we saw in Q3 as well. So, we don’t see a big change in that so far. Prospectively, we believe this is a good market. Again we say the market will grow at 4% going forward. We believe there will be a pickup in the market size in 2014 with the Affordable Care Act kicking in. But in the short run given what we saw in Q3 and Q4, we are anticipating that will gradually improve going into next year, but we don’t see significant changes in the market going forward.
Back-End Loaded Guidance
Ricky Goldwasser – Morgan Stanley: In the prepared remarks you talked about guidance being backend loaded. Can you give us some sense as to what percent of revenue in earnings will be first half versus second half?
Stephen H. Rusckowski – President and CEO: Yeah, so let me start and I’ll turn it to Bob as well, and we shared why do we believe it’s going to be back end loaded. Well, first of all, as we do have a number of programs that we have initiated in 2012 that are gaining momentum, we believe we’ll have the most material impact in 2013 in the second half. For instance, we are putting an emphasis on growing our hospital professional services business; we believe there will be volumes in the second half that we won’t see in the first half. In addition to that, if you look at the comparisons versus last year, the first quarter of last year was strong. It’s a tough compare. As a matter of fact, there’s 1% fewer workdays in the first quarter versus last year. Second is, if you look at second half, we’re coming off the second half that was softer. So, it’s a combination of our organic investments that are materializing in 2013, and also how the year lays out in 2013. So, I’ll turn it to Bob.
Robert A. Hagemann – SVP and Chief Financial Officer: And Ricky, while we don’t provide quarterly guidance obviously, we wanted to provide this level of understanding so that folks, as they’re thinking about the first half of the year versus the second half of the year can get it right. As Steve said, the first quarter of last year was a very strong quarter, clearly the strongest volume that we’ve reported. So, that’s going to be one of our toughest comps as we go into next year.
Ricky Goldwasser – Morgan Stanley: And, should we think about pricing at the same way, because I think pricing was fairly strong in the first quarter ’12, so is it a fair assumption that in 1Q’13 the metric that you report on pricing kind of like the price declines in 1Q’13 would be greater than what you reported in fourth quarter?
Robert A. Hagemann – SVP and Chief Financial Officer: Again, remember last year’s first quarter had the benefit in it of – I’ll call it the last quarter of both Athena and Celera in their which drove mix that anniversaried as we got into the second quarter and we saw relative stability in the revenue per req throughout the year subsequent to that. As we think about the 3% reimbursement pressure, it’ll be relatively even throughout the year we are expecting.
Ricky Goldwasser – Morgan Stanley: And then lastly on the hospital front. I mean, obviously I think hospital outsourcing trend is one of the key debates in the lab space. And looking at the metric that you have provided by payor I see that actually hospital and reference lab revenues have gone up in 2012. So, can you just give us some color on what drove the year-over-year growth in revenue from that kind of like payor bucket and how do you think about that segment in ’13?
Stephen H. Rusckowski – President and CEO: You are right. We did see growth in our hospital reference business and we are encouraged by that. I think it speaks volumes. We shared at Investor Day that we have about 50% of hospitals have contracts with us for their reference work and given that large share of what they give to us is the more esoteric testing. We see it is a trend that will continue, but also we are going to build on those relationships and more strategic discussion about where they are heading with their laboratory activities including the reference testing but also how we can have more value-added services providing to that including taking under average business. So, that’s our strategy, but we are going to build on that trend that you picked up in the details.
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