Covance was back in profit for the third quarter of 2012: US$30.6 million at the operating level, although income was still diluted by restructuring costs and other charges, as well as losses from facilities in wind-down.
Including those facilities, net revenue was only marginally ahead of the third quarter of 2011. The US-based drug development services provider has stuck with its previous forecast for revenue growth in the whole of 2012 while raising the bottom end of its projected range for diluted earnings per share (EPS) by US$0.15.
According to Joe Herring, chairman and chief executive officer of Covance, pro forma earnings in the third quarter were better than expected and the performance “demonstrates the leverage in our scalable business model when commercial success is combined with our lower cost infrastructure”.
Income decline
Operating income for the three months ended 30 September 2012 was down by 40.0% on the same period last year.
The figure of US$30.6 million included restructuring and other charges of US$18.1 million compared with a US$5.3 million hit in the year-before quarter, as well as losses of US$2.6 million from facilities being wound down in Chandler (US), Honolulu (Hawaii), Basel (Switzerland) and other locations.
The bulk (US$17.2 million) of the restructuring charges were levied in Covance’s Early Development segment, as were all of the facility losses.
Without these special items, Q3 operating income would have been down by just 8.9% year on year to US$51.3 million.
Q2 hit
Covance was more heavily burdened with special items in the second quarter, when these came to US$52.2 million, resulting in an operating loss of US$3.9 million versus operating income of US$48.8 million for Q2 2011.
In the latest quarter, diluted earnings per share (EPS) were 2.5% down at US$0.69 if the charges and losses were taken into account.
Stripping out the special items gave diluted EPS of US$0.72, a 0.7% improvement over Q3 2011 and well above the consensus estimate of US$0.67 from analysts polled by Thomson Reuters.
Net revenues for the third quarter of 2012 were US$544.8 million, 0.3% ahead of Q3 2011 but slightly below the analyst consensus of US$547.9 million.
Revenues were down by 8.1% to US$220.7 million in Early Development and up by 6.9% year on year to US$324.1 million in the Late Stage Development segment.
If the contribution from facilities in wind-down was taken out of the equation, net revenues overall for the third quarter fell by 0.3% year on year to US$541.9 million.
Strong orders
“On the sales front, clinical development and central laboratories continued to deliver strong new orders, driving adjusted net orders of US$701 million and an adjusted book-to-bill of 1.29 to 1,” Herring noted.
Backlog as of 30 September 2012 was US$6.37 billion versus US$6.23 billion at the end of the second quarter.
“We continue to have significant pending proposals,” Herring added. “In addition, our strategic information technology projects continue to progress on-time and on-budget.”
Full-year forecasts
Covance expects pro forma revenues in the fourth quarter of 2012 to be slightly ahead of the third quarter and the company is maintaining its full-year projection of revenue growth in the low- to mid-single-digits.
The full-year forecast for diluted pro forma EPS is now US$2.65 to US$2.70, using foreign exchange rates as of 30 September and excluding impairment charges, restructuring and other costs, losses from facilities in wind-down, and favorable income tax developments.
At the second-quarter stage, Covance was projecting full-year diluted EPS in a range of $2.50 to $2.70, compared with a first-quarter forecast of US$2.50 to US$2.80.
