PRINCETON, N.J., May 2, 2012 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported financial results for its first quarter ended March 31, 2012, including net revenue growth of 5.7% to $531 million, operating margin of 8.7%, earnings of $0.60 per diluted share, and adjusted net orders of $704 million.
“In the first quarter, performance in our Early Development segment was significantly below our expectation, which was offset by significantly better than expected performance in our Late-Stage Development services, enabling us to meet our first quarter financial targets on a consolidated basis,” said Joe Herring, Chairman and Chief Executive Officer. “Continued strong commercial performance drove a 25% year-on-year increase in adjusted net orders and an adjusted book-to-bill of 1.33 to 1. In addition, our strategic information technology projects are progressing according to the plan we outlined on our fourth quarter call.
“In terms of segment performance in the quarter, Late-Stage Development revenues grew 14.8% year-on-year, led by over 25% revenue growth in clinical development and 4% growth in central laboratories. Earnings from this stronger than expected revenue growth more than offset increased spending related to Late-Stage strategic information technology projects, resulting in a 270 basis point sequential increase in operating margins to 22.7%. Record adjusted net orders in central laboratory and clinical development give us increased confidence in our positive outlook for Late-Stage Development, which accounted for 60% of our revenue in the quarter.
“In Early Development, much lower than expected volumes in toxicology and discovery support services led to a revenue decline of 5.5% year-on-year while operating margins were 5.3%, versus our low double-digit operating margin expectation as we entered the quarter. Performance was impacted by very soft results in January and February. However, we experienced a recovery in March, with segment revenues increasing 12% over the run rate from the first two months of the quarter and margins increased to 8.5%. In toxicology and discovery support services, results were impacted by a very slow start to the year from our larger clients. Toxicology orders were light during the first two months of the quarter, but rebounded strongly in March, ultimately exceeding our expectations for the full quarter. We expect a sequential increase in revenue and operating margins for the segment in the second quarter as higher volumes in toxicology and discovery support should more than offset an expected decline in clinical pharmacology results.
“Furthermore, we are announcing additional restructuring actions in Early Development to better align capacity to preclinical market demand and further improve profitability going forward. These actions include closing our Chandler, Arizona facility, as well as a further reduction in our Early Development cost structure. These actions are expected to result in annualized profit improvement (excluding associated costs and charges) of at least $20 million, of which approximately one-third is expected to be realized in 2012, and toxicology room capacity in North America near 2007 levels. We are also evaluating other cost actions, some of which are contingent on pending decisions regarding several large commercial opportunities under discussion. Even as we reduce our footprint, our Early Development services remain an important differentiator for Covance and are a key component of our integrated drug development alliances.
“In the second quarter of 2012, we expect mid-single-digit year-on-year revenue growth and an increase in net revenues from the first quarter level in both segments. Accordingly, we expect second quarter earnings per share (excluding costs associated with our new actions) to be several cents above the first quarter level. For the full year, we continue to forecast mid-single-digit year-on-year revenue growth and diluted earnings per share in the range of $2.50 to $2.80 (excluding costs associated with our new actions and assuming foreign exchange rates remain at March 31 levels) as stronger performance in Late-Stage Development services offsets weaker performance for our Early Development services.”
