PRINCETON, N.J., Nov. 3, 2010 /PRNewswire-FirstCall/ -- Covance Inc. (NYSE: CVD) today reported results for its third quarter ended September 30, 2010, which included a GAAP loss of $0.49 per diluted share. Included in results is a $1.16 per diluted share non-cash impairment charge related to a write-down of preclinical assets, partially offset by a gain of $0.16 per diluted share from favorable income tax resolutions in the quarter. Excluding these items, earnings per diluted share were $0.50.
“Despite a tougher environment for our toxicology services, we achieved our consolidated revenue and earnings expectations in the third quarter. In addition, as evidence of the success of our long-term business strategy, we were selected by sanofi-aventis as its R&D partner, executing a 10-year alliance which we expect to generate revenues ranging from a minimum commitment of $1.2 billion to at least $2.2 billion when including the sole-source components. This alliance drove year-on-year backlog growth of 26% to more than $6 billion,” said Joe Herring, Chairman and Chief Executive Officer.
“In order to address softer market conditions across much of our portfolio, we are taking decisive actions to reduce capacity and significantly lower our cost structure while maintaining service quality. These actions will enable us to enter 2011 as a leaner, more competitive company. First, the weakening in the market for outsourced toxicology services in the third quarter drove us to reassess our toxicology service offering. This has resulted in a decision to consolidate our North American toxicology services by closing our toxicology facility in Vienna, Virginia. In addition, we have taken an asset impairment charge in the third quarter totaling $119 million reflecting the excess of the carrying value of our Chandler, Arizona and Manassas, Virginia assets over their estimated fair market value. We will also be reducing spending across the company, including corporate overhead; realizing savings from process improvements and automation investments; and restructuring the executive management team. The future cost of these actions is expected to total approximately $35 million to $40 million, with more than half of the cost being incurred in the fourth quarter of 2010 and the remainder in 2011. We expect savings, net of costs, to generate incremental operating income of at least $25 million in 2011.
“Looking ahead to the fourth quarter of 2010, we expect consolidated revenue, excluding the sanofi-aventis alliance, to be roughly flat sequentially, reflecting market conditions in toxicology and, in Late-Stage Development, the slower start-up, delays, and cancellations of clinical trials. These factors are expected to result in earnings per share in the range of $0.50 to $0.55, including earnings from the sanofi-aventis alliance and excluding the site closure and other costs associated with the restructuring actions.”
Consolidated Results
($ in millions except EPS) | 3Q10 | 3Q09 | Change | 2010YTD | 2009YTD | Change | |
Total Revenues | $ 513.3 | $497.6 | $1,519.0 | $1,455.3 | |||
Less: Reimbursable Out-of-Pockets | $ 36.3 | $22.3 | $ 84.9 | $ 72.7 | |||
Net Revenues | $ 477.0 | $ 475.3 | 0.4% | $1,434.1 | $1,382.6 | 3.7% | |
Operating Income (Loss) | $ (76.7) | $ 57.8 | (232.8)% | $ 18.6 | $173.7 | (89.3)% | |
Net Income (Loss) | $ (30.9) | $ 51.1 | (160.6)% | $ 39.9 | $134.3 | (70.3)% | |
Earnings (Loss) Per Share | $ (0.49) | $ 0.79 | (161.2)% | $ 0.61 | $ 2.09 | (70.7)% | |
Impairment charge* | $(119.2) | - | $(119.2) | - | |||
Favorable Income Tax Items* | $10.4 | $ 2.1 | $10.4 | $2.1 | |||
Gain on Sale, net of tax* | - | $ 5.9 | - | $ 6.3 | |||
Operating Income, excluding items* | $ 42.5 | $ 57.8 | (26.5)% | $137.9 | $173.7 | (20.6)% | |
Operating Margin %, ex items* | 8.9% | 12.2% | 9.6% | 12.6% | |||
Net Income, excluding items* | $32.6 | $ 43.1 | (24.3)% | $103.4 | $126.0 | (17.9)% | |
Diluted EPS, excluding items* | $ 0.50 | $ 0.67 | (25.0)% | $1.59 | $ 1.96 | (18.9)% | |
* See attached pro forma income statements for reconciliation of GAAP to Pro Forma amounts. | |||||||
Operating Segment Results
Early Development
($ in millions) | 3Q10 | 3Q09 | Change | 2010 YTD | 2009 YTD | Change | |
Net Revenues | $206.5 | $196.4 | 5.1% | $ 619.7 | $ 588.7 | 5.3% | |
Operating Income (Loss) | $(98.5) | $ 22.4 | (539.1)% | $ (53.1) | $ 76.7 | (169.3)% | |
Impairment charge | $(119.2) | - | $(119.2) | - | |||
2Q10 Cost Actions | $(1.3) | - | $ (8.0) | - | |||
Operating Income, excluding items | $ 22.0 | $ 22.4 | (1.8)% | $ 74.1 | |||
