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Covance 3Q Revenue Up, Operating Income Down

Thursday, October 22, 2009

Covance, a global contract research organization, reported third quarter revenues grew 8% to $493.7 million compared with the prior year quarter, but operating income slipped 17% to $57.8 million.

The company reported earnings per diluted share of $0.79, including $0.09 per share gain related to the sale of its IVRS business and $0.03 cents from favorable income tax resolutions. Excluding the gain on sale and tax items in the quarter, earnings were $0.67 per diluted share.

“On a consolidated basis, third quarter net revenues grew 8% year-on-year and EPS was $0.67. In addition, adjusted net orders grew approximately 20% both year-on-year and sequentially and free-cash-flow was strong at $88 million,” said Joe Herring, Covance’s chairman and CEO. “In Early Development, results were below our expectations, as revenues and operating margins declined sequentially, primarily due to weaker performance in clinical pharmacology and some of our chemistry services. Toxicology revenue was up modestly from the second quarter with lower operating margin. In Late-Stage Development, better than expected performances in central laboratory and clinical development led to accelerated revenue growth of 24.1% and record operating margin of 24.7%.

Herring added that Covance received continued strong business awards in clinical development and central laboratory, which led to record adjusted net orders in the third quarter of $623 million.

“We are encouraged by the exceptional strength of our Late-Stage Development segment, which represented 59% of Covance’s third quarter revenues. In Early Development, overall demand has been lower and the timing of study starts has been less predictable. We are projecting relatively flat Early Development results until we see a sustained recovery in demand,” Herring said.

The company expects consolidated fourth quarter earnings per share to be in the $0.64 to $0.67 range, which would bring full-year earnings per share to the low end of its previous targeted range of $2.60 to $2.80, excluding gains on sales and favorable income tax resolutions.

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