A 5% increase in net revenues did not stop ICON’s operating income from plunging 70% year on year in the fourth quarter of 2011, as costs continued to rise at the global provider of outsourced development services based in Ireland.
Operating income for the quarter was US$6.65 million, down by 69.8% compared with the same period of 2010. Net revenues were 4.5% higher at US$242.6 million, lagging behind the reported analyst consensus of US$251.6 million, while total costs and expenses rose by 12.3% year on year to US$236.0 million in the latest quarter.
Although the Q4 figures were spared the restructuring costs of US$4.8 million that put ICON into the red during the third quarter of 2011, the company had warned earlier in the year that its shift towards strategic alliances would mean some financial discomfort before associated revenues started to feed through.
At the second-quarter stage, then-chief executive officer Peter Gray noted that ICON was stepping up its hiring drive to accommodate its recently announced five-year strategic partnership with Pfizer for clinical trial implementation services.
This was expected to “add significant cost in the next two quarters as we gear up to handle work which will be transitioned to us in Q4 and throughout 2012”, Gray commented at the time.
Encouraging performanceGray’s successor, Ciaran Murray, said he was “encouraged” by ICON’s fourth-quarter performance, citing net new business awards of US$308 million, which produced a book-to-bill ratio of 1.3. The year-end backlog was US$2.3 billion, up by 19% on December 2010.
Diluted earning per share (EPS) for the latest quarter were US$0.07, down from US$0.38 in the fourth quarter of 2010. Analysts had been looking for net profit of US$0.08 per share.
Announcing its third-quarter results last October, ICON pruned back its EPS guidance for the whole of 2011, from a range of US$1.10-US$1.25 given with the annual results in March 2010 to US$0.50-US$0.70, reflecting the sharp rise in costs associated with equipping the business for the Pfizer partnership.
As it was, diluted earnings per share for 2011 (which included non-recurring charges of US$9.8 million) came in very much at the low end of that scale, reaching US$0.52 against US$1.44 in Q4 2010. Full-year net revenues were US$945.7 million, up by 5.1% year on year.
At the third-quarter stage, ICON forecast revenue growth of 15-20% for the current year, with EPS guidance in the range of US$0.90 to US$1.10. The company has stuck to its EPS prediction, with Murray citing expected revenue growth, helped by strategic alliances, and better leverage from ICON’s cost base.
Revenues for 2012 are projected at US$1.07 billion to US$1.11 billion, which is a slightly tighter range than was implied by the revenue growth forecast given in October.
ICON also announced the appointment of Brendan Brennan as chief financial officer. He had been acting CFO since October 2011, when Peter Gray retired after nine years at the helm of ICON and then-CFO Ciaran Murray stepped up to take his place. Brennan has also served as ICON’s senior vice president of corporate finance.
BeijingWits in the fold
The company has completed its acquisition of Chinese contract research organisation BeijingWits Medical Consulting Ltd, which was announced last December.