Restructuring continued to take its toll at Parexel International as the US-based biopharmaceutical services made a muted start to its new financial year, reporting a 58.5% decline in operating income to US$12.5 million for the first quarter.
Included in that figure was a restructuring charge of US$2.7 million, compared with restructuring costs of US$390,000 in the first quarter of the 2011 fiscal year. Parexel said the latest charges were in line with previously announced plans and included US$1.7 million in severance costs plus US$1.0 million of facility-related costs.Operating income for the fourth quarter of fiscal 2011 (down by 92.3% year on year to US$1.56 million) included restructuring charges of US$8.92 million.
At the third-quarter stage in May, Parexel had announced a US$15.0 million restructuring programme, focused mainly on its faltering Early Phase operations and including a 3% cut in staffing. At the same time, Parexel said it was ramping up staff recruitment in its wider Clinical Research Services business to prepare for growth in the pipeline.
The third-quarter results had also included a US$144,000 restructuring charge, related primarily to severance costs in addition to those arising from the restructuring programme announced or implemented by Parexel in the third quarter of 2010 at a cost of US$4.1 million.
In the latest quarter, adjusted operating income without the restructuring charge would have been US$15.2 million, still 48.8% lower year on year. That gave adjusted earnings per share (EPS) of US$0.20 for Q1, down by 31.0% but above the consensus of US$0.17 from analysts polled by Thomson Reuters.
On a reported basis (i.e., including the restructuring charges), diluted EPS for the three months ended 30 September 2011 were US$0.16 compared with US$0.30 for the first quarter of fiscal 2011.
Consolidated service revenues for the latest quarter were slightly below the quoted analyst consensus of US$317.7 million. They rose by 6.4% to US$314.7 million, with growth from all three segments of Parexel’s operations.
In the largest of these, Clinical Research Services, service revenues were 1.6% ahead of Q1 fiscal 2011 at US$235.4 million but gross profit dropped by 22.3% to US$62.7 million.
Growth in backlog
Backlog at the end of September was around US$3.61 billion, an increase of 23% year on year.
It included gross new business wins of US$694.0 million in the quarter, cancellations of US$138.2 million, a negative currency translation effect of US$72.6 million, and a negative adjustment of US$5.1 million “related to the disposition of a business”, Parexel noted. The net book-to-bill ratio was 1.77.
“During the first quarter, we continued to make progress toward achieving our operational and financial goals, as evidenced by sequential revenue growth and improved operating margins, helped by effective cost controls,” stated chairman and chief executive officer Josef von Rickenbach.
He said the company was also pleased with its progress on strategic partnerships, which continued to mature according to plan. “We have accelerated hiring to meet the current and future requirements of our clients,” von Rickenbach added.
Parexel expects the momentum built up in the first quarter to continue during the rest of fiscal year 2012, with quarter-to-quarter growth in revenues and improvements in profit margins.
The company has tightened up its forecasts for revenues and earnings in the full financial year.Consolidated service revenues are now projected in a range of US$1.355 billion to US$1.385 billion, compared with the US$1.355 billion to $1.395 billion forecast previously. Earnings per diluted share are expected to come in at US$0.99 to US$1.14, whereas the previous forecast was for diluted EPS of US$0.95 to US$1.14.