Operating profits drop for Parexel thanks to restructuring costs

By Natalie Morrison

- Last updated on GMT

Related tags: New business, Generally accepted accounting principles

Restructuring costs for Parexel have caused a dramatic drop in GAAP operating income, reveal the company’s Q4 results.

Operating income as reported under Generally Accepted Accounting Principles (GAAP) came in at $1.6m (€1.2m) as compared with 2010’s figures of $20.1m (€14m) – a 92.2 per cent decline.

The drastic results are, in part, a reflection of the company’s decision to take an early hit for long-term gain, after incurring hefty restructuring charges for closing down four failing Phase I sites​ in June.

Furthermore, pharma giant Pfizer’s decision​ to streamline its clinical development outsourcing into two main outlets – Parexel and Icon – meant a hike in employment for the Boston-based CRO (contract research organisation), which added more than 200 employees from the third quarter.

Even when taking the impact of special items into account, the non-GAAP figures still show a 62.8 per cent decrease year-on-year, with adjusted operating income of $10.5m down from $28.2m in fiscal 2010.

Looking up

However the company’s uptick in bookings appears to have achieved enough revenue to offset their soaring operating costs.

Parexel reported record fourth quarter revenue of $310.5m, and full year 11 revenue of $1.21bn versus $1.13bn in the previous year – something the firm’s chairman and CEO Josef von Rickenbach attributes to new business and backlog.

He said: “The results of the fourth quarter generally met our expectations, and we were especially pleased with our strong new business results.

“We were excited to see an uptick in activity from clients in the small and emerging biopharma segment in the quarter, and we expect to continue to win our fair share in this market segment going forward.

"Fiscal year 2011 presented us with many exciting new business opportunities, as many of our clients embraced a new way of working with us.

“The year's new business and backlog results clearly demonstrate that PAREXEL is a partner of choice for many clients.”

Financial analyst David Windley, of Jefferies, said of the ‘better than lowered expectations’: “The management took a hatchet to EPS (earnings per share) guidance last quarter on higher anticipated operating expenses (OpEx).

“That OpEx was primarily to accommodate hiring for strategic deals. The company added around 200 employees from financial third quarter, yet managed to beat consensus EPS by $0.03 with a $0.10 result, excluding one-time charges.

“Guidance for financial first quarter looks slightly better than consensus as well, which was $0.16-0.18 as apposed to $0.16.”

Back to the future

Although Parexel’s outlay in fiscal2011 has caused set back in the short-term, the company insists it will continue to invest in the long-term.

Of the businesses future, Rickenbach added: "As we enter into fiscal year 2012, our focus is on revenue growth, successfully executing quality projects for clients, and on increasing operating income by further reaping the benefits of our productivity and efficiency initiatives.

“We plan to continue making judicious investments by adding to our talent base to meet current and future project needs.

“We anticipate that as the year progresses, some of the more mature strategic partnerships will hit their stride.

“We also anticipate that we will achieve a restoration of our profitability over the course of the year, as productivity starts to improve and as a variety of initiatives and the previously-announced restructuring bear fruit."

Related topics: Clinical Development

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