Parexel’s profit rises in Q1, but FY 2011 may look bleaker

By Alexandria Pešić

- Last updated on GMT

Related tags Generally accepted accounting principles Revenue

Cost cutting measures helped Parexel to one of its most profitable quarters after taking lower-than-expected revenues on project delays and cancellations.

Operating income for Q1 of fiscal year 2011 grew around $12m to $30m thanks to, says CEO Josef von Rickenbach, the cost cutting measures the US contract research organisation (CRO) introduced, as well as lower tax rates.

Total service revenue for the period, derived from the CROs contract research services, consulting and marketing businesses and Perceptive Informatics unit, increased 13.9 per cent on the year earlier quarter, to $295.8m.

However, this was short of the $300m to $305m range Parexel predicted in its previous financial report, due to project delays and cancellations, including two pulled by clients towards the end of Q1 that reduced the firm’s revenue by firm $149.2m (€106m) and left it with a net book-to-bill ratio of1.5.

As a result, Parexel cut its forecast for fiscal 2011, predicting revenue to be in the $1.25bn to $1.27bn range, down from the $1.265 to $1.31bn it targeted in its previous report.

Lauren Migliore, a Morningstar analyst, agreed with the revised guidance explaining, “We have slightly dialled down our top-line assumptions for the year,” ​as Parexel increased its number of employees to fulfil new partnerships.

In her report, she said enthusiasm for the firm’s strong earnings is “tempered by a weak outlook for the remainder of the year.”

However, Migliore still believes the drug sector’s rising demands for outsourcing services will ensure any future falls in profit will “have a trivial impact on our long-term valuation of the company.”

Asia pacific growth

Rickenbach too was upbeat about the rest of the year, suggesting the recent new business wins, worth $586m, along with the current proposal pipeline and potential partnership opportunities will ensure Parexel’s “future remains very bright.”

He also described Parexel’s growth in the Asia Pacific region - which saw it set up two offices in China in may and a unit in Japan just last month - as a “notable highlight” of the firm’s activities in the three months ended September 31.

Related topics Clinical Development

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