Covance Beats Earnings, Rev, Ups View


Covance Inc.(CVD) reported adjusted earnings per share of 75 cents in the first quarter of 2013, beating the year-ago results by 25% and the Zacks Consensus Estimate by 4.2%.  Earnings improvement was driven by top line growth and margin expansion.

Including the impact of the one-time items (losses from facilities in wind-down, restructuring costs and other charges), reported earnings in the quarter came in at 86 cents, beating the year-ago earnings by 43.3%.


Revenues in the first quarter increased 10.5% to $634.3 million, sailing past the Zacks Consensus Estimate of $580 million as solid sales performance in the Late Stage development segment offset decline in the Early development business.

Covance primarily derives its revenues from two segments, Early Development and Late-Stage Development.

Early Development Stage

Net revenues from Early Development declined 2.1% year over year to $207 million in the quarter. Growth in clinical pharmacology, research products and nutritional chemistry was offset by reduced toxicology and discovery support services.

In the reported quarter, Early Development pro forma operating margin was 9.7%, up 440 basis points (bps) year over year, despite the revenue shortfall. Restructuring activities which took place in 2012 is largely responsible for the expansion in the operating margin.

Late Stage Development

Net revenues from the Late-Stage Development surged 16.8% year over year to $372.9 million.  Growth in this segment was driven by of central laboratories and increased clinical development. Favorable foreign exchange also impacted the revenue by 10 bps.

Pro forma operating margin expanded 10 bps on a year-over-year basis to 22.8%. Year on year increase in profitability in the central laboratories offset the increase in the strategic IT spending

Consolidated Margins

For 1Q13, gross margin expanded 80 bps to 35.2%. Operating margin of the company decreased about 40 bps to 7.6%. Reimbursable out-of-pocket expenses increased 25.7% year-over-year to $54.1 million while the selling, general and administrative expenses increased 10% year over year to $89.2 million.

Balance Sheet

Covance exited first-quarter 2013 with cash and cash equivalents of $430 million, down 2.3% year over year. Operating cash flow of negative $54 million and capital expenditure of $30 million in first-quarter 2013 resulted in annual free cash flow of negative $84 million in comparison with free cash flow of about $15.6 million the previous quarter.


Covance increased its guidance for revenue growth to a high-single digit range from previously guided mid- to high-single digit growth for 2013. Based on current foreign exchange rates, the company expects adjusted earnings to be in the range of $3.00 to $3.20, up from previously guided range of $2.85 and $3.15. Currently, the Zacks Consensus Estimate for 2013 is pegged at $3.14.

Out Take

Though Early Development franchise continues to decline, the Late-Stage Development continues to drive the revenue of the company single-handedly. Moreover, the company looks forward to 2013 with optimism and expects to accelerate growth in the future, due to which Covance raised it guidance for 2013. This is primarily due to several patent expiries in the pharmaceutical industry which might improve market conditions for Covance. With the ongoing ‘patent cliff’, the company expects higher demand from its customers in the pharmaceutical and biotechnology industries as they develop their pipeline.

With positive industry trends, estimates continue to move higher for Covance. Accordingly, the stock carries a short-term Zacks Rank #2 (Buy). Other Zacks Rank #2 medical stocks are MedAssets, Inc. (MDAS), Omnicell Inc. (OMCL) and ICON Public Limited Company (ICLR) which also warrant a look.

Read the Full Research Report on CVD

Read the Full Research Report on OMCL

Read the Full Research Report on MDAS

Read the Full Research Report on ICLR

Zacks Investment Research

More From
View Comments (0)

Recommended for You

  • Toyota's top female executive resigns after arrest in Japan

    TOKYO (AP) — Julie Hamp, Toyota's most senior female executive, has resigned following her arrest in Japan on suspicion of drug law violations, the automaker said Wednesday.

    Associated Press
  • 6 Analyst Stocks Predicted to Double

    While traditional Dow and S&P 500 stocks are often given upside of 8% to 15% for analysts' Buy and Outperform ratings, some analysts see certain stocks rising 30%, 50% or even 100%.

    24/7 Wall St.
  • Markets rally on report Greece is ready to accept bailout terms

    The euro, European stock markets and U.S. stock futures moved sharply higher on Wednesday after a report that Greek Prime Minister Alexis Tsipras is ready to accept the creditors' bailout terms. According ...

  • Trump files $500 million lawsuit as pageant woes mount

    NEW YORK (AP) — As fallout built over Donald Trump's remarks about immigrants from Mexico, the Republican presidential candidate answered back with legal action to match his trademark brashness, filing a $500 million lawsuit.

    Associated Press
  • How Much Does a Boeing 747-8 Cost?

    Does Boeing believe that the 747 maintains enough strategic value to the company to make it worth committing cash that it could use for other purposes?

    24/7 Wall St.
  • Play

    Cramer: Don't buy on current market dip

    Mad Money host Jim Cramer ticks down reasons for complacency in today's market action.

    CNBC Videos
  • Greece appears to cave to demands, but Europe skeptical

    ATHENS, Greece (AP) — Greece's government appeared to be caving into demands from its creditors on Wednesday, offering concessions in a desperate attempt to get more aid hours after its bailout program expired.

    Associated Press54 mins ago
  • U.S. vs. Germany Is The Greatest Women’s World Cup Game Of All Time

    Check out FiveThirtyEight’s Women’s World Cup predictions. I didn’t care about the sweat pooling beneath my thighs in the 90 degree Pasadena sun; I hardly stayed seated anyway. We had woken up early to paint our faces and finish decorating our signs before loading into the family van to drive an…

  • 'Mad Money' Lightning Round: This Is the Time for Halliburton

    Cramer wants Lennar over Altisource Portfolio Solutions, says UnitedHealth Group is run well but don't even mention Lumber Liquidators.
  • Burger King wants to do something that McDonald's has never been able to accomplish

    Burger King wants to start selling veggie burgers worldwide. The fast-food chain introduced a...

    Business Insider
  • Are Women More Likely Than Men To End A Relationship?

    Dear Mona, A couple of years ago, my wife told me that she wanted a divorce. I recently read an article claiming that anywhere from 60 percent to 85 percent of divorces are initiated by the wife. How likely are men to initiate divorce compared with women? Nathan, 30, Indiana Dear Nathan, I’m not sure

  • 4 Oil Stocks to Buy as Second Half 2015 Activity Set to Jump

    In a new research note, RBC sees the second half of the year ramping up with top oil companies increasing drilling activities.

    24/7 Wall St.
  • Play

    Too optimistic on Greece: Cramer

    CNBC's Jim Cramer shares his thoughts on Greece's debt crisis.

    CNBC Videos
  • How to set up your money to build wealth as you sleep

    The ultimate money managers don't necessarily work harder — they work smarter. Ramit Sethi...

    Business Insider
  • Play

    Next for Puerto Rico: 'People are going to leave'

    As Puerto Rico's dire fiscal and economic situation becomes more acute, the commonwealth could see its population decreasing even further.

  • Kroger president and COO makes exit

    Kroger Co. president Michael Ellis has retired, effective immediately. Cincinnati-based Kroger, the nation’s largest operator of traditional supermarkets, and Ellis both agreed that he would retire now, Kroger said in a Securities and Exchange Commission filing on Monday afternoon that included a…

    American City Business Journals
  • That Was Fast — Coal Goes Back to the Furnace

    The Supreme Court ruling against the EPA for not considering costs was supposed to be a lifeline for the business of fossil fuels. Or was it?

    24/7 Wall St.