Expansion through acquisition again cut into Kendle’s net income for the latest financial quarter while helping to maintain the US contract research organisation’s (CRO) strong growth in revenues and operating profit. The share price dipped on the results announcement but recovered the following day, suggesting confidence in the company’s underlying financials despite its lower guidance for revenue and profit in the full year.

Helped by the acquisition of Charles River Laboratories’ Phase II-IV clinical services business in August 2006, net service revenues for the third quarter ended 30 September 2007 rose by 31.3% to $100.1 million. Some 51% of these revenues came from North America, 41% from Europe, 5% from Latin America and 3% from the Asia/Pacific region.

Kendle’s operating income for the third quarter was 76.0% higher at $14.2 million, giving an operating margin of 14.2% compared with 10.8% in the same period last year. Net income, though, dropped by 5.3% to $3.79 million or $0.25 per diluted share ($0.27 in Q3 2006), reflecting a charge for amortisation of acquired intangibles related to the Charles River acquisition, as well as the write-off of deferred financing costs for the company’s term debt. Without these items, earnings per diluted share (EPS) would have been $0.48, slightly above analysts’ expectations.

New business hits record

New business awards reached a record $175 million in the third quarter, up by 18% over the same quarter of 2006. Contract cancellations came to around $7 million, giving a net book-to-bill ratio (net new business divided by revenue for the quarter) of 1.7 to 1. Total new business authorisations were worth $831 million as of 30 September, up by 10% from 30 June 2007 and representing an all-time company high, Kendle noted.

“We are particularly pleased with the strong increase in our operating margin,” commented chairman and chief executive officer Candace Kendle on the third-quarter performance. “We look forward to building on this momentum to deliver improved value for our shareholders.”

Nonetheless, the CRO is offering more cautious guidance for the full year. Net service revenues are now projected at $390-$400 million compared with $400-$420 million at the second-quarter stage. The forecast for an operating margin of 12-14% is unchanged but EPS guidance is reduced from $1.32-$1.52 to a range of $1.25-$1.35.