Better than expected earnings pushed up shares in US-based contract research organisation (CRO) Parexel International, even though the company’s service revenues for the third quarter ended 31 March fell short of its own forecasts.
Parexel reported diluted earnings per share (EPS) of US$0.25 for the quarter, the same as one year earlier. However, this was at the top end of the CRO’s own EPS forecast given at the second-quarter stage, while analysts had pencilled in earnings per share of US$0.23. Operating income for the third quarter was 16.3% higher at US$26.4 million.
Consolidated service revenues (which do not include reimbursement revenue) rose by 7.8% to US$264.5 million in the quarter. Parexel’s forecast had been for revenues of US$273-US$283 million. Accordingly, the company has now lowered its revenue projection for fiscal 2009 while adjusting upwards its EPS guidance for the financial year.
Parexel is expecting earnings per diluted share of US$0.83 to US$0.85 and consolidated service revenues of US$1.075-US$1.080 billion for fiscal 2009. The previous forecasts, also given when Parexel announced its second-quarter results in January, were for diluted EPS of US$0.80 to US$0.84 on service revenues of US$1.095-US$1.115 billion.
Despite the more muted revenue outlook, commentators drew favourable comparisons with rival CRO Kendle International, which recently warned that its net service revenues for the first quarter of 2009 would be “well below” financial analysts’ consensus forecast of around US$121 million.
Also this month, PPD lowered its full-year guidance for both revenues and EPS, citing “unprecedented cancellation levels, significant rescheduling of existing backlog and lower-than-expected authorisations” in the first quarter.
Core business
Parexel’s core Clinical Research Services (CRS) business generated service revenues of US$199.7 million in the third quarter, 4.2% more than in the same period of fiscal 2008, and gross profit of US$71.8 million (+10.4%).
Parexel Consulting & Medical Communications Services (PCMS) showed a continuing trend of revenue decline, down 12.9% year on year to US$29.2 million. Gross profit in the segment was almost flat at US$11.3 million.
The technology division Perceptive Informatics, which was boosted by the acquisition of UK-based clinical technology specialist ClinPhone last August, reported service revenues 75.6% ahead at US$35.6 million and gross profit more than doubled to US$15.5 million.
In geographical terms, Europe, the Middle East & Africa accounted for the largest chunk (47.9%) of consolidated service revenues during the third quarter, although revenues from this region slipped back 1.9% to US$126.7 million. Service revenues from the Americas jumped 13.8% to US$113.5 million and the Asia/Pacific region brought in US$24.2 million, 46.9% more than in the third quarter of fiscal 2008.
Parexel’s backlog at the end of the third quarter was US$2.036 billion, up by around 6.8% year on year. This included gross new business wins of US$427.3 million, cancellations of US$95.8 million and a negative impact of US$37.4 million from currency translation. The net book-to-bill ratio (gross new business minus cancellations and divided by service revenues) was 1.25 for the third quarter.
Determined focus
Chairman and chief executive officer Josef von Rickenbach said Parexel’s third-quarter results were “a clear reflection of the determined focus by our employees to control costs and achieve both our financial and operational targets”. The company also managed “to generate a very respectable level of new business wins in the quarter, despite some market headwinds”, he added.
According to von Rickenback, Parexel’s global footprint and diverse service offerings “have positioned us well for the current environment. Revenue growth has been quite healthy, especially on a same-store, constant-currency basis. The steps that we have taken over the past year to better leverage our global presence in managing our own costs have been paying off, and we still have a number of initiatives underway which we expect will continue to drive revenue growth and profitability in the coming quarters”.
For the fourth quarter of fiscal 2009, Parexel is projecting consolidated service revenues of US$271-US$277 million and earnings per diluted share of US$0.26 to US$0.28.
