) reported adjusted earnings per share of 83 cents in the third
quarter of 2013. The results beat the year-ago figure by 15.3%
and was ahead of the Zacks Consensus Estimate by 3 cents.
The upside was driven by improved top line and margin.
Including the impact of certain one-time items, reported
earnings in the quarter came in at 78 cents, registering a 13.0%
beat compared with the year-ago earnings of 69 cents a share.
Net revenues from continuing operations increased 12% from the
year-ago quarter to reach $606.7 million, beating the Zacks
Consensus Estimate of $596 million. Covance primarily derives its
revenues from two segments, Early Development and Late-Stage
Development. While solid sales performance was seen in Late-Stage
Development backed by accelerated revenues in central
laboratories, Early Development segment witnessed sluggish growth
in the quarter.
Net revenues from continuing operation in Early Development
were up a mere 1.2% year over year to $220.4 million in the
quarter, driven primarily by growth in clinical pharmacology
Early Development pro forma operating margin was 13.1%, up 180
basis points (bps) year over year.
Net revenues from Late-Stage Development surged 19.2% year
over year to $386.4 million on the back of continued strong
performance in central labs, where net revenues were up 26% year
over year. Pro forma operating margin expanded 260 bps on a
year-over-year basis to 22.6%. Year-over-year increase in profits
in central laboratories neutralized the increase in strategic IT
Gross margin expanded 189 bps to 29.9%. Operating margin
increased about 496 bps to 15.6%. Reimbursable out-of-pocket
expenses declined 23.6% year over year to $40.3 million, while
selling, general and administrative expenses declined 7.8% year
over year to $87.1 million.
Covance exited third-quarter 2013 with cash and cash
equivalents and short-term investmentsof $592.6 million, up 20.2%
year over year. Operating cash flow of $215 million and capital
expenditure of $35 million in second-quarter 2013 resulted in
free cash flow of $180 million.
Covance expects 2013 revenues to grow by 10%, ahead of the
earlier expectation that lay in the high single-digit range. The
company also tightened its adjusted earnings expectation to $3.20
from the earlier provided range of $3.10−$3.20 per share.
Currently, the Zacks Consensus Estimate for 2013is pegged at
The company expects sequential growth in revenues and
operating income in both the Early and Late-Stage Development
segments in the fourth quarter of 2013.
Covance has managed to post a better-than-expected
third-quarter result with modest top- and bottom-line beats.
However, the Early Development segment (contributing 36% of the
company's sales) continues to pose challenges. On the other hand,
Late-Stage Development continues to drive single-handedly. Based
on its expectation of accelerated growth for the rest of 2013,
Covance increased its guidance for the fiscal. Another reason
behind this optimistic approach might be the expiration of
several patents in the pharmaceutical industry, which are likely
to improve market conditions for Covance, going forward.
The stock carries a Zacks Rank #3 (Hold). Medical stocks such
Align Technologies Inc.,
Cardinal Health, Inc.
Mindray Medical International Limited
), each carrying a Zacks Rank #1 (Strong Buy), are expected to do
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CARDINAL HEALTH (CAH): Free Stock Analysis
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