PRINCETON, N.J., Feb. 4, 2015 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its fourth quarter ended December 31, 2014. Net revenue was $634 million, representing 1.8% growth on a GAAP basis from the fourth quarter of 2013. When adjusting for the impact of foreign exchange and the divestitures of the Seattle genomics laboratory and antibody products service line and the acquisition of Medaxial in 2014, revenue growth was 5.3% versus the fourth quarter of 2013. On a GAAP basis, the company reported earnings of $0.91 per diluted share in the fourth quarter. The company reported pro forma earnings per diluted share of $0.97, up 11.9% over the fourth quarter of 2013. Pro forma results exclude charges associated with restructuring and other cost reduction actions and expenses incurred in connection with the planned merger with Laboratory Corporation of America® Holdings (LabCorp®) (NYSE: LH) totaling $5.6 million or $0.06 per share.
“In the fourth quarter, our underlying operating results improved both year-on-year and sequentially. On a constant foreign exchange rate basis and adjusted for the acquisition of Medaxial, revenue in our Late-Stage Development segment grew sequentially by 5.6% (or $22 million), and year-on-year growth accelerated to 4.8%. In our Early Development segment, on a constant foreign exchange rate basis and adjusted for divestitures, revenue grew 6.3% year-on-year, similar to the year-on-year growth we delivered the last two quarters. On a constant foreign exchange rate basis and adjusted for divestitures and an acquisition, consolidated revenue grew $24 million sequentially and 5.3% on a year-on-year basis to $634 million. This compares to year-on-year constant foreign exchange rate and organic revenue growth of 2.6% last quarter. Consolidated financial highlights for the full year 2014 included 5% revenue growth, a 190 basis point increase in pro forma operating margin to 12.1%, pro forma EPS growth of 18%, and free-cash-flow of $154 million, which exceeded our target by over $20 million,” said Joe Herring, Covance Chairman and Chief Executive Officer. “On the commercial front, performance in the quarter was well above our previous record level, with fourth quarter adjusted net orders of $823 million, resulting in an adjusted net book-to-bill of 1.30 to 1. In addition to our record fourth quarter orders, we are receiving significant positive client feedback regarding our planned merger with LabCorp. For example, in a notable January clinical trial win, a key driver in the client’s decision was the potential data synergies with LabCorp, which are expected to accelerate clinical trial patient recruitment.”
Covance will not host a fourth quarter earnings conference call or provide 2015 financial guidance as a result of its pending acquisition by LabCorp, which is expected to close shortly following Covance’s special stockholder meeting scheduled for February 18, 2015. However, Covance has posted its supplemental quarterly slide presentation on www.covance.com and Covance’s Investor Relations Officer will respond to questions via telephone and email.
Consolidated Results
($ in millions except EPS) | 4Q14 | 4Q13 | Change | FY14 | FY13 | Change |
Total Revenues | $675.2 | $669.8 | $2,699.6 | $2,595.1 | ||
Less: Reimbursable Out-of-Pockets | $ 40.8 | $ 46.7 | $ 178.6 | $ 192.8 | ||
Net Revenues | $634.4 | $623.1 | 1.8% | $2,521.0 | $2,402.3 | 4.9% |
Net Revenue growth adjusted for FX and | 5.3% | 4.8% | ||||
Operating Income | $72.1 | $55.0 | 31.2% | $234.8 | $217.3 | 8.0% |
Operating Margin | 11.4% | 8.8% | 9.3% | 9.0% | ||
Net Income | $52.0 | $45.8 | 13.5% | $185.8 | $179.2 | 3.7% |
Diluted Earnings per Share | $0.91 | $0.80 | 13.4% | $3.23 | $3.15 | 2.6% |
Restructuring Costs and Transaction |
($5.6) |
($4.9) |
($17.1) |
($21.9) | ||
Asset Impairments | ($4.9) | ($52.6) | ($4.9) | |||
Operating Income, excluding items** | $77.7 | $64.7 | 20.0% | $304.4 | $244.2 | 24.7% |
Operating Margin, excluding items** | 12.2% | 10.4% | 12.1% | 10.2% | ||
Gain (Loss) on Sale of | ($0.1) | $15.0 | $16.4 | |||
Favorable Income Tax Developments | $3.0 | $3.0 | ||||
Net Income, excluding items** | $55.6 | $49.6 | 12.1% | $218.7 | $183.7 | 19.1% |
Diluted EPS, excluding items** | $0.97 | $0.87 | 11.9% | $3.80 | $3.23 | 17.8% |
* See revenue growth reconciliation which follows.
** See attached pro forma income statements for reconciliation of 2014 and 2013 GAAP to pro forma amounts.
Operating Segment Results
Early Development
($ in millions) | 4Q14 | 4Q13 | Change | FY14 | FY13 | Change |
Net Revenues | $231.4 | $228.3 | 1.4% | $915.7 | $870.5 | 5.2% |
Net Revenue Growth Adjusted for FX | 6.3% | 6.2% | ||||
Operating Income | $30.9 | $21.9 | 41.0% | $59.4 | $87.5 | (32.1%) |
Operating Margin | 13.4% | 9.6% | 6.5% | 10.1% | ||
Restructuring Costs | ($1.1) | ($0.8) | ($5.4) | ($8.3) | ||
Asset Impairments | ($4.9) | ($52.6) | ($4.9) | |||
Operating Income, excluding items** | $32.0 | $27.6 | 15.8% | $117.4 | $100.7 | 16.6% |
Operating Margin, excluding items** | 13.8% | 12.1% | 12.8% | 11.6% |
* See revenue growth reconciliation which follows.
** Reflects impact of asset impairment charges and/or restructuring charges as applicable in all periods.
The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products. Net revenues in the fourth quarter of 2014 increased 1.4% year-on-year to $231.4 million. In the quarter, foreign exchange negatively impacted year-on-year revenue growth by 120 basis points, and the divestitures of the Seattle genomics laboratory and antibody products service line negatively impacted revenue growth by 370 basis points. When adjusting for these items, Early Development revenue grew 6.3% year-on-year. The strongest contributors to the year-on-year growth were clinical pharmacology and nutritional analysis. Sequentially revenue declined $3.4 million. Adjusting for the impact of the stronger US dollar and the divestiture of the antibody products service line, revenue increased by $1.9 million. This sequential growth was led by nutritional analysis and other chemistry services which more than offset the expected decline in clinical pharmacology, which followed a normal seasonal pattern; toxicology services revenues were up slightly from the third quarter level. Orders in the segment were at the highest level of the year, driven in part by robust biotech funding in the quarter.
GAAP operating income in the fourth quarter of 2014 was $30.9 million, and included $1.1 million in charges associated with our restructuring and cost reduction actions. This compares to operating income of $21.9 million in the fourth quarter of 2013, which included charges associated with restructuring and other cost reduction actions and asset impairment charges totaling $5.7 million. Pro forma operating income, excluding these items, was $32.0 million in the fourth quarter of this year, a 15.8% increase from the fourth quarter of 2013.
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