QDEL Q3 Deep Dive: Margin Progress and Cost Actions Offset Headwinds in Core Diagnostics

Healthcare diagnostics company QuidelOrtho (NASDAQ:QDEL) announced better-than-expected revenue in Q3 CY2025, but sales fell by 3.7% year on year to $699.9 million. The company expects the full year’s revenue to be around $2.71 billion, close to analysts’ estimates. Its non-GAAP profit of $0.80 per share was 71.6% above analysts’ consensus estimates.

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StockStory’s Take

QuidelOrtho’s third quarter was marked by a positive market reaction, reflecting solid execution despite a year-on-year decline in reported sales. Management attributed the quarter’s underlying strength to sustained growth in core labs, immunohematology, and point-of-care product lines, excluding COVID and donor screening. CEO Brian Blaser emphasized, “We reported organic sales growth of 5%, excluding COVID sales and the U.S. donor screening business that we are in the process of exiting.” Margin improvement was driven by cost-saving initiatives and a disciplined commercial strategy, enabling the company to mitigate the impact of declining respiratory revenue.

Looking ahead, QuidelOrtho’s outlook hinges on continued cost discipline, targeted investments in R&D, and navigating headwinds from tariffs and product mix shifts. Management is focused on executing margin expansion initiatives and managing integration costs, while also preparing for a limited rollout of new platforms. CFO Joseph Busky cautioned that the company expects margin pressure in the near term due to higher instrument sales and incentive compensation, but remains confident in achieving long-term EBITDA margin targets and improved free cash flow conversion.

Key Insights from Management’s Remarks

Management credited core diagnostics growth and margin expansion to a combination of new product launches, geographic diversification, and rigorous cost controls.

• Core business stability: The core labs, immunohematology, and point-of-care segments delivered mid-single-digit growth, excluding COVID and donor screening headwinds. Management pointed to stable renewal rates for the VITROS immunoassay platform and strong demand for automated testing solutions in blood banks and hospitals.
• Cost savings drive margin gains: Over $140 million in annualized cost savings have been realized, primarily through reductions in staffing, procurement, and manufacturing consolidation. CFO Joseph Busky noted these efforts are central to the company’s path toward sustainable mid- to high-20s EBITDA margins.
• New product momentum: The company secured FDA clearance for its VITROS high-sensitivity troponin assay, which CEO Brian Blaser described as elevating the cardiac testing panel “to world-class performance.” While not expected to impact short-term growth rates, this launch is seen as a long-term differentiator in cardiac diagnostics.
• Geographic diversification: Strong growth outside the U.S., especially in Latin America (21% labs growth) and stable expansion in Asia Pacific and EMEA, offset weakness in North America tied to lower respiratory testing volumes. Management highlighted underpenetration in international markets as a key opportunity.
• Mitigating tariff headwinds: Tariff impacts reduced gross margins, but targeted cost actions and local manufacturing (particularly in China) helped offset these pressures. The company expects to fully neutralize tariff impacts by 2025.

Drivers of Future Performance

Management expects margin expansion and cash flow improvements to depend on successful product rollouts, further cost reductions, and managing external headwinds.

• Respiratory seasonality and product mix: The timing and severity of the upcoming respiratory season will influence near-term revenue and margin trends. CFO Joseph Busky explained that fourth quarter margins may be lower sequentially due to a typical increase in instrument sales, which carry lower margins than consumables, and higher year-end incentive compensation expenses.
• Integration and cost transformation: Ongoing efforts to consolidate facilities, streamline procurement, and finalize the exit from the U.S. donor screening business are expected to support margin accretion in 2026 and beyond. The full impact of these actions, including a $20 million annual cost savings from facility consolidation, should materialize as stranded costs are removed.
• New platform launches: The anticipated FDA clearance and limited rollout of the LEX Diagnostics platform could lead to incremental costs and initial margin dilution in 2026, but management expects long-term accretive contributions as scale is achieved in subsequent years.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be tracking (1) the pace of adoption for new assays and platforms like the VITROS high-sensitivity troponin and LEX Diagnostics, (2) progress on cost containment and facility consolidation efforts to drive margin improvement, and (3) the normalization of the U.S. donor screening exit and its impact on the topline and margin mix. The trajectory of international growth and the timing of respiratory season demand will also influence performance milestones.

QuidelOrtho currently trades at $29, up from $27.40 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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