Strong revenue growth in Late-Stage Development and favourable comparisons with a year-before quarter marked by impairment and restructuring costs helped Covance to deliver operating income of US$51.5 million for the second quarter, compared with a US$3.9 million operating loss in Q2 2012.
The US-based drug-development services company, which topped analysts’ estimates for earnings per diluted share (ignoring special items) in the latest quarter, has tightened up its EPS guidance for the full year to reflect a more bullish outlook.
Covance continues to expect revenue growth “in the high-single-digit range” for 2013.
Net revenues in the three months ended 30 June 2013 were US$592.3 million, up by 9.1% over the second quarter of 2012.
Early Development revenues dropped 2.3% year on year but Late Stage Development was up by 16.9%, with Covance singling out growth of 22% and 13% in central-laboratory services and clinical development respectively.
Restructuring costs
Operating income for Q2 2013 included restructuring costs of US$6.0 million – US$2.3 million of the total incurred in Early Development and US$1.4 million in the Late Stage segment – as well as a gain of US$0.7 million on the sale of an equity investment.
In the second quarter of 2012 there were restructuring costs of US$9.7 million; a US$3.8 million loss from Early Development facilities in Chandler, Honolulu and Basel closed during the year; a US$38.7 million charge for impairment of goodwill and inventory; and a US$7.4 million charge for impairment of equity investment.
Stripping out the special items, operating income for the latest quarter was 19.1% higher at US$57.5 million and diluted earnings per share rose by 19.9% to US$0.78.
Analysts polled by Thomson Reuters were expecting EPS of US$0.77 on average for the second quarter, on forecast revenue of US$586.1 million.
Better than expected
Joe Herring, chairman and chief executive officer of Covance, highlighted accelerated revenue growth in central laboratories as the “primary driver” of “better-than-expected” consolidated results for Q2 2013.
He also pointed to the company’s strong commercial performance led by clinical development, which resulted in adjusted net orders worth US$776 million for the quarter and an adjusted net book-to-bill ratio of 1.31 to 1.
Late/Early Stage
Late-Stage Development revenues were US$377.7 million versus US$323.1 million in Q2 2012, while operating income climbed 16.9% to US$79.5 million.
In the Early Development segment, net revenues declined from US$219.7 million to US$214.6 million but Covance generated operating income of US$21.9 million compared with a US$33.1 million loss in the year-before period.
Covance has adjusted its forecast for pro forma diluted earnings per share in 2013 to a range of US$3.10 to US$3.20, excluding gains on sale as well as costs associated with ongoing restructuring activities, and assuming foreign exchange rates remain at 30 June 2013 levels.
The previous guidance was for diluted EPS in the range of US$3.00 to US$3.20.
