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Quest Diagnostics Adds to Buyback

Earnings hit targets but the outlook is mixed.
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Quest Diagnostics

(DGX) - Get Quest Diagnostics Incorporated Report

posted a strong fourth quarter, rolled out a bigger stock buyback plan and boosted its dividend, but the medical testing company offered lukewarm guidance for 2006.

The Lyndhurst, N.J., clinical testing company made $130 million, or 64 cents a share, for the quarter ended Dec. 31, up from the year-ago $126 million, or 60 cents a share. Revenue rose to $1.43 billion from $1.28 billion a year earlier. Analysts surveyed by Thomson First Call were looking for a 62-cent profit on sales of $1.36 billion.

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The company also expanded its stock buyback plan by $600 million, to $722 million, and boosted its quarterly dividend by a penny to a dime a share.

"Our clinical testing business delivered another quarter of strong performance. During the quarter, we completed the acquisition of LabOne, which further solidifies our industry leadership," said CEO Surya N. Mohapatra. "We are disappointed with the performance at our test kit manufacturing subsidiary, NID, and are actively working to address the issues. As we look to 2006, we expect another strong year of performance at Quest Diagnostics."

The company expects 2006 diluted earnings per common share to be between $2.75 and $2.85 after the estimated 20-cent-a-share cost of expensing stock compensation. Analysts were looking for $3.07. Revenues are expected to grow 12.5% to 13.5%, with roughly 8% from LabOne.

The company also expects operating income as a percentage of revenues to approximate 17%, reflecting an estimated 1% reduction due to the adoption of SFAS 123R. Cash from operations is expected to approximate $800 million, after the impact of adopting SFAS 123R, and capital expenditures are expected to range from $225 million to $245 million. These estimates are before any potential charges related to integration or restructuring activities.