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PAREXEL's Earnings in Line but Shares Tank

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PARAXEL International Corporation's (PRXL) first-quarter fiscal 2014 adjusted earnings per share surged 55.2% year over year to 45 cents per share from 29 cents in the year-ago quarter. Earnings were on par with the Zacks Consensus Estimate. Adjusted net earnings grew 47.7% from the prior-year quarter to $25.8 million from $17.5 million in the prior-year quarter.

On a reported basis, net income of this biopharmaceutical outsourcing services company was $26.0 million or 45 cents per share, compared with $15.1 million or 25 cents per share recorded in the year-ago quarter. Improved gross margin across all business lines, coupled with operating efficiency propelled strong results during the quarter.

Revenues increased 14.4% to $529.1 million, comfortably beating the Zacks Consensus Estimate of $449 million. Service revenues climbed 13.8% (13.9% at constant exchange rate or CER) to $449.2 million. Recent acquisitions (HERON and Liquent) contributed roughly $11.5 million to revenues in the quarter. On the other hand, Reimbursement revenues rose 14.5% to $79.8 million.

Gross margin improved 270 basis points (bps) to 27.6% from 24.9% in the prior-year quarter. Adjusted selling, general and administrative (SG&A) expenses increased 21.7% to $84.8 million. However, adjusted operating margin grew 150 bps to 7.9% in the quarter.

Quarter in Details

On a geographic basis, The Americas; Europe, Middle East & Africa (:EMEA) and Asia/Pacific contributed 50%, 35.2% and 14.8% to service revenues, respectively. Service gross margin grew impressively by 330 bps to 32.5% from 29.2% in the prior-year quarter

Service revenues from Clinical Research Services (CRS) rose 11.9% to $332.6 million, while service gross margin from this segment climbed 250 bps to 28.4%. Year-over-year revenue growth was driven partly by strong performance in the Strategic Partnership accounts.

PAREXEL Consulting & Medical Communications Services (:PCMS) service revenues increased 10.7% to $53.5 million, while its gross margin improved 300 bps to 41.6%. The outperformance was led by the acquisition of HERON, which contributed 4.9% to overall growth.

Service revenues from the Perceptive Informatics (:PI) segment escalated 28.2% year over year to $63.1 million and gross margin surged 650 bps to 46.5% in the quarter. Growth was particularly strong in PRXL’s platform solution business, which includes MyTrials offering, as well as robust performance in eClinical data services.

PAREXEL’s backlog was approximately $4.6 billion at the end of Sep 2013, up 2.2% from $4.5 billion at the end of Sep 2012. The reported backlog included gross new business wins of $563.7 million, cancellations of $169.7 million, and a positive impact from foreign exchange rates of $80.6 million during the quarter. Net new business win was $394.0 million, which was below the company's expectations due to delayed contract signature and soft win rate. The net book-to-bill ratio was 0.88 in the quarter.

Balance Sheet

PRXL ended the first quarter of fiscal 2014 with cash and marketable securities of $304.6 million, up 22.3% from $249.1 million as of Sep 30, 2013. The company’s long-term debt increased to $495.0 million from $267.5 million as of Sep 30, 2013.


PAREXEL divulged its outlook for the second quarter of fiscal 2014 and reaffirmed its outlook for the full fiscal year. Management expects fiscal second-quarter revenues and reported EPS in the range of $475–$480 million and 46 to 50 cents, respectively.

For fiscal 2014, PRXL continues to anticipate revenues in the range of $1.890–$1.920 billion. Both reported and adjusted EPS are forecasted in the band of $1.95–$2.11 for the fiscal year.

Our Take

Shares of PRXL have been declining ever since it reported its fiscal first-quarter results. On Oct 30, the company’s shares plunged 15% and the declining trend is still continuing. Although the company posted a healthy first quarter, sluggish new business wins in the reported period has raised investor concerns regarding the future trend of the stock.

Management blamed delays in finalizing contract deals, soft new business flows from partners and lesser-than-anticipated win rates as reasons responsible for the disappointing outcome. However, they are confident that fiscal second-quarter results will improve on the back of several pending proposals closed and solid wins achieved in the month of October.

Currently, PAREXEL has a Zacks Rank #3 (Hold). While we choose to remain on the sidelines regarding PRXL, other medical services stocks that are worth considering include Charles River Laboratories International, Inc. (CRL), Covance Inc. (CVD) and ICON Public Limited Company (ICLR). All these stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on CVD
Read the Full Research Report on CRL
Read the Full Research Report on PRXL
Read the Full Research Report on ICLR

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