Drug development services company Covance Inc. (CVD), Wednesday reported a modest decline in net profit for the third quarter, reflecting lower demand for its early development services, even as revenues grew 8% from last year. Nevertheless, earnings were in line with Street expectations, while revenues were ahead of market projections. Covance also provided earnings forecast for the fourth quarter of fiscal year 2009.
For the third quarter, the Princeton, New Jersey-based company's net income slipped a modest 0.1% to $51.06 million from 51.11 million in the year-ago quarter. On a per share basis, earnings slid 0.8% to 0.79 from 0.80 last year.
Results for the third quarter include a $0.09 per share gain related to the sale of its IVRS business and $0.03 per share from favorable income tax resolutions.
Excluding one-time items, net income dropped 15.6% to $43.12 million from $51.11 million in the previous-year quarter. On a per share basis, earnings decreased 16.3% to $0.67 from $0.80 in the prior-year quarter.
On average, 14 analysts polled by Thomson Reuters expected the company to earn $0.67 per share for the quarter. Analysts' estimates typically exclude one-time charges and gains.
In the preceding second quarter, Covance reported a net income that declined to $42.99 million or $0.67 per share from $50.87 million or $0.80 per share in the same quarter last year.
Total revenues for the recent third quarter increased to $483.72 million from $467.37 million in the same quarter last year, while net revenues rose 8% to $475.28 million from $440.11 million in the year-earlier period. Analysts expected the company to report revenue of $468.80 million for the quarter.
For the preceding second quarter, net revenues increased to $466.0 million from $436.0 million in the prior year quarter
Revenues reimbursable Out-of-Pockets for the third quarter were $18.44 million, compared to $27.26 million last year.
Segment-wise, net revenues for Early Development, which includes preclinical toxicology, analytical chemistry, clinical pharmacology services, and research products. decreased 8.8% year-over-year to $196.4 million, while operating income plunged 59.1% from last year. Net revenues for Late-Stage Development segment, which includes central laboratory, Phase II-III clinical development grew 24.1% to $278.9 million from last year, while operating income rose 55.6% from the previous-year quarter.
Operating income for the quarter declined 17.4% year-over-year to $57.80 million, while operating margin contracted to 12.2% from 15.9% in the year-earlier period.
Total costs and expenses for the quarter were $436.00 million, compared to $397.41 million last year. Cost of revenue reimbursable was $324.31 million, up from $287.80 million in the same quarter last year.
Covance noted that in Early Development, overall demand has been lower and the timing of study starts has been less predictable. As a result, it is projecting relatively flat Early Development results until a sustained recovery in demand is seen.
The company's backlog at September 30, 2009 grew 12.8% year-over-year to $4.79 billion, compared to $4.25 billion at September 30, 2008 . Foreign exchange positively impacted sequential backlog growth by $51 million. Adjusted net orders for the third quarter were $623 million.
At September 30, 2009, cash and cash equivalents were $266 million, compared to $209 million at September 30, 2008.
For the nine-month period, the company's net income dropped 11.1% to 134.35 million from $151.10 million last year. On a per share basis, earnings dropped 11.4% to $2.09 from $2.36 in the same period last year. Excluding one-time items, net income dropped to $126.00 million or $1.96 per share from $148.53 million or $2.32 per share in the year-ago period.
Total revenues for the period increased to $1.45 billion from $1.36 billion in the same period last year, while net revenues increased 7.2% to $1.38 billion from $1.29 billion in the year-ago period.
Amongst others in the industry, Charles River Laboratories Int'l Inc. (CRL), is slated to release its third quarter results on Tuesday, November 3, after market close. On average, 16 analysts on consensus currently expect the company to report earnings of $0.60 per share for the quarter.
Looking ahead to the fourth quarter, Covance said it expects earnings to be in the range of $0.64 to $0.67 per share 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.
Analysts currently expect the company to report earnings of $0.72 per share for the fourth quarter.
CVD closed Wednesday's regular trading at $54.65, down $1.15 or 2.06%, on a volume of 1.32 million shares on the NYSE. In after hours, the stock further lost $0.68 or 1.24%, trading at $53.97. In the past 52 weeks, the stock trended in a broad range of $31.43 - $74.24, with a three-month average volume of 0.67 million shares.
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