Quintiles stock up after 2nd-quarter financial release despite net income drop

Aug. 01, 2013 @ 06:46 PM

In its first financial release since its return to the stock market in May, Durham-based contract clinical trials company Quintiles Transnational Holdings Inc. reported service revenues of $944.2 million in the second quarter, beating analysts’ estimates.

The biopharmaceutical services company’s net income was down 18 percent to $38.5 million. However, its total revenues were up 5 percent to almost $1.3 billion. It saw a slight decline in service revenues of less than 1 percent to $944.2 million.
Thomson Reuters analysts’ Thomson Reuters analysts’ consensus mean estimate for what the company’s revenues would be in the quarter was $942 million.
David Krempa, an analyst who follows the company for the investment research firm Morningstar, said Quintiles’ revenue results were “a little better than expected.”
“It feels good – we’ve seen (that) kind of the whole industry is doing well right now,” Krempa said. Since Quintiles is a large, diverse company, its sales and earnings results aren’t expected to be as volatile as some of its smaller competitors’, he said, and it’s also expected that they wouldn’t be growing as fast.
But he said the company saw “pretty good growth” in its product development segment, which includes its contract clinical trials and associated laboratory and analytical services work, although it saw a decline in its integrated health services segment that includes the work of its contract drug sales force.
In a report on the company’s financial results, Krempa said the integrated health services segment is a “much less attractive business” and was a “significant drag” on the company’s second-quarter’s earnings.
“(Quintiles had) some pretty good growth in the product development segment, which is what we think of as the better business for them,” Krempa said. “And then the integrated health business (it’s not) as attractive as a business – that’s the one that kind of faced challenges this quarter, with sales and profit down.”
The company reported that its product development business segment revenues were up 4.6 percent to $724.2 million. In the integrated health segment, Quintiles reported a nearly 13 percent decline in revenues to $220 million.
Kevin Gordon, the company’s chief financial officer, said in a conference call on Thursday with analysts that the contract sales business performed largely as expected. It was negatively impacted by lower net new business, unfavorable foreign exchange rates, and the end of a major contract last year, according to a company news release.
Founded in 1982, Quintiles’ major business is in the management of clinical trials for drug development firms.
In the conference call, Quintiles’ CEO Tom Pike said the company is seeing its customers – pharmaceutical companies – undergoing “dramatic change.” He said the pipelines of many pharmaceutical companies are filling back up, and their approval rates are up. But he said there’s an aversion among top executives to repeating a pattern he said they’d seen in the last 15 years of hiring followed by layoffs. That’s where he said there’s an opportunity for the “right service provider.”
“That’s Quintiles,” he said.
This is the second time the company’s common stock has traded publicly. Quintiles went public in 1994 and was taken private again in a buy-back of stock led by company founder Dennis Gillings, a former biostatistics professor at the University of North Carolina at Chapel Hill, with other investors.
The company has about 2,100 workers in the Triangle and about 2,300 in total in North Carolina. In the United States, Quintiles has about 8,000 workers, and it has about 27,000 globally, according to Phil Bridges, a spokesman for the company.
Earlier this year, the company announced a restructuring that would result in the severance for about 400 workers. Bridges said that is for the full calendar year, and is a global number.
“To provide proper context, we currently have more than 1,000 positions worldwide for which we are recruiting,” he said in an email. “We are not providing further information on our resources plans.”
The company’s stock price was trading up 3.41 percent to $46.38 at the market’s close on Thursday. Krempa said he believes the uptick in the price was due to guidance released by the company projecting earnings to be higher than analysts had been expecting.
The company expects service revenues for the year to be between $3.76 billion and $3.81 billion, and diluted earnings per share of between $1.63 and $1.73 per share.