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Quest profit misses estimates, deals to drive growth

(Reuters) - Laboratory tests provider Quest Diagnostics Inc, whose earnings have been hurt by Medicare reimbursement cuts, said growth this year will be driven by acquisitions.

The No. 1 U.S. laboratory testing company has been implementing a $500 million restructuring program to restore growth and improve operational efficiency as hospital operators buy up physician practices, cutting into its customer base.

The company announced on Wednesday its second deal this year to expand services to people who live in remote areas and do not have easy access to such services.

Quest, which bought Massachusetts-based UMass Memorial Medical Center's clinical and anatomic-pathology laboratory outreach business in January, said it acquired California-based Dignity Health's outreach business.

"The Dignity transaction, combined with the UMass, positions us extremely well in two states that are leading the way in healthcare reform and is one more indication that hospitals are looking for more cost-effective ways to manage diagnostic testing," Chief Executive Steve Rusckowski said.

"We expect to complete additional fold-in acquisitions consistent with our goal of delivering 1 percent to 2 percent growth per year," he said on a conference call with analysts.

The company expects the Dignity deal to be neutral to adjusted earnings in 2013 and slightly add to earnings per share in 2014.

"We think (the Dignity) acquisition is an incremental positive as it could help mitigate some competition in one of Quest's stronger markets, California," Piper Jaffray analyst Kevin Ellich said in a note.

RESULTS DISAPPOINT

Quest's net income for the quarter ended March 31 fell 15 percent to $135.8 million, or 85 cents per share, from a year earlier.

Excluding items, Quest earned 89 cents per share, much below the average analyst expectation of $1.03, according to Thomson Reuters I/B/E/S.

Net revenue fell about 6 percent to $1.78 billion, below analysts' expectations of $1.86 billion.

"Our results for the quarter reflect our previously stated expectation for revenue softness during the first half of 2013, with gradual improvement throughout the remainder of the year," CEO Rusckowski said.

Quest Chief Financial Officer Robert Hagemann, who is set to retire at the end of May, said the company expects to achieve $600 million in run-rate savings by the end of 2014, and will have reached about two-thirds of that goal by the end of 2013.

Quest shares were down marginally at $58.21 on the New York Stock Exchange in midday trading.

(Reporting By Pallavi Ail in Bangalore; Editing by Saumyadeb Chakrabarty, Maju Samuel)

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