Covance Inc. has reported earnings for its first quarter ended March 31, 2010 of $0.60 per diluted share versus $0.63 per diluted share in the first quarter of 2009.
"On a consolidated basis, first quarter net revenues grew 9.2%, operating margin was 11.0%, and diluted EPS of $0.60 met our first quarter expectation," said Joe Herring, Chairman and Chief Executive Officer. "Early Development revenues grew 6.5% year-on-year and increased for the second consecutive quarter; operating margin was 11.%. Toxicology revenues were essentially flat from the fourth quarter, while sequential improvement in clinical pharmacology was partially offset by softness in some of our chemistry services. In Late-Stage Development, revenue grew 11.3% over the first quarter of 2009 and operating margin exceeded our expectation at 23.9%.
Strong performance in clinical development services helped to offset a sequential decline in central laboratory revenue resulting largely from the slower start-up of some new trials. While we expect sequential increases in central laboratory revenue as the year progresses, we expect clinical development to have a slower conversion of backlog to revenue in the second quarter and for the balance of the year primarily due to delays in the commencement of three large Phase III clinical studies.
"On the commercial front, adjusted net orders in the first quarter were $490 million, representing an adjusted book-to-bill of 1.02 to 1. Our Early Development segment achieved an adjusted book-to-bill greater than 1.0 to 1 for the third consecutive quarter. Late-Stage Development net book-to-bill in the quarter was below 1.0 to 1, due to delayed decision making by clients.
However, the trailing twelve month adjusted book-to-bill for the Late-Stage segment was approximately 1.25 to 1, and outstanding proposals are at record levels. With regard to building new strategic relationships, we continue to advance discussions with several large clients.
"In the second quarter, we began closure of two smaller underperforming sites - our Phase I clinic in Austin, Texas and our research products facility in Kalamazoo, Michigan - consolidating the volume into more efficient locations. These closures, combined with smaller cost rationalizations in other parts of our company, will reduce our employee-base by approximately 200 people and result in a cost of approximately $0.09 per share in the second quarter. We expect these actions to generate savings ramping to at least $0.12 per share on an annualized basis by year-end.
"As a result of these cost actions (and related savings), coupled with the headwinds created by a stronger US dollar, and delays in the commencement of Late-Stage studies, we are adjusting our 2010 revenue growth rate expectation to the 5%-8% range and our earnings per share target to $2.40 to $2.65. This range includes the impact of the second quarter cost actions, but it does not include benefits from any potential strategic transactions. In the second quarter of 2010, we expect earnings per share to be approximately $0.50, inclusive of site closure and severance costs outlined earlier."