QuidelOrtho delivered a quarter in which the revenue line held up and nearly everything beneath it deteriorated. Adjusted EPS of $0.31 missed the $0.45 consensus by 31.1% and fell 61.3% from a year ago. Revenue of $618.9 million edged past the $615.24 million estimate by 0.6% but declined 11.6%, a sharp reversal from roughly 2% growth in the second quarter. On a GAAP basis, the net loss narrowed to $0.78 per share from $10.78, though that comparison mostly reflects last year's $700.7 million goodwill impairment rather than operating progress. The central tension is that management is pointing to steady core franchises and a new cost program while cutting full-year guidance for the fourth straight time, with leverage still moving the wrong way.
The quality of the quarter deserves scrutiny. Adjusted EBITDA fell to $148 million from $177.1 million, and the margin slipped to 23.9% from 25.3%. That number was flattered. On the call, management said the 47.8% gross margin included about 300 basis points of non-recurring benefits, including tariff refunds and vendor credits, that will not repeat in the fourth quarter. Net interest expense rose to $55.4 million from $46.1 million, which compounds the pressure on per-share earnings. The narrowed outlook is the clearest signal. Revenue guidance was cut to $2.52-$2.54 billion and adjusted EPS to $0.65-$0.70, effectively pinning both to the bottom of the prior ranges. With $0.41 of adjusted EPS earned through nine months, the guide implies only about $0.24-$0.29 in the fourth quarter. The original outlook called for $2.00-$2.42 in EPS and $630-$670 million in EBITDA.
China is the driver of the collapse. Revenue there fell about 45%, versus a 23% decline in the second quarter, after IVD pricing guidelines were finalized in mid-August. China Labs revenue dropped to $36.9 million from $67.7 million. Management now expects China to be about 8% of 2026 revenue and just 4-5% in 2027, with destocking continuing through this year and pricing and competitive pressure next year. That is a long way from the low-single-digit growth assumed at the start of the year. Point of Care fell 27% on a 39% drop in respiratory sales. Excluding respiratory, China and U.S. Donor Screening, revenue grew 3% in constant currency, which is the core of the bullish argument. Even that core cooled, however. Labs ex-China growth slowed to 4% from 9% in the prior quarter, which management attributed to Middle East and EMEA softness and tender timing.
The genuine improvements are on cost and cash. Free cash flow was roughly break-even, compared with -$136 million in the second quarter and -$95 million a year ago. Operating cash flow improved by $65 million year over year, and capital spending fell to about $20 million from $49 million. The new restructuring program targets more than $80 million of 2027 savings, which management described as incremental to roughly $140 million already captured and sufficient to more than offset 2027 China headwinds. The company is also reorganizing into Core Diagnostics and Point of Care Diagnostics. Possible upside comes from an early start to the respiratory season, which management excluded from its cautious fourth-quarter assumption, and from continued Vitros 450 and Nulexa placements.
The balance sheet is where bears have legitimate ammunition. Net leverage rose to 4.5x against a year-end target of about 3.8x set earlier in the year. The credit agreement was amended to lift the maximum leverage covenant to 5.5x through the second quarter of 2028. The current portion of borrowings climbed to $424 million from $178 million at year-end. Full-year free-cash-flow guidance remains withdrawn, and the $30-$35 million of fourth-quarter restructuring charges will be largely cash. Management's statement that it is evaluating every option to support deleveraging keeps portfolio actions involving Point of Care or China on the table. That is both a potential catalyst and an admission of strain. The tone has shifted from growth to defense.
The market had already priced in some relief. Investor sentiment remained negative but improved meaningfully, rising to -0.29 from -0.53. Shares stood at $14.03 before the report, up 10.7% from the open after the August release and about 41% above the October 1 low of $9.93. They remained 13.6% below the 200-day moving average and below the $15.52 inter-earnings high. That rebound sets a higher bar for a report that missed on earnings and trimmed guidance again. The trend readings are mixed, with AVWAP positive but momentum negative.
The bottom line is that QuidelOrtho's quarter was a cash-flow and cost story set against a business that is still shrinking, with an earnings base that keeps getting reset lower. The core Labs and Immunohematology franchises outside China are growing, but more slowly. Third-quarter margins were propped up by one-time items, and leverage is high enough that the covenant had to be loosened. The restructuring plan gives the 2027 story some credibility. Until guidance stops moving down and deleveraging becomes visible, the recent stock rebound rests more on hope than on demonstrated fundamental improvement.