Over the past year Parexel has suffered from slow conversion of its expanding backlog and the rising costs needed to support its strategic deals. These themes continued in its second quarter but, with service revenues jumping 10 per cent, some observers welcomed the latest financial results.
“We like these results and believe Parexel is well positioned heading into 2012”, Eric Coldwell, equity analyst at RW Baird, wrote in a note to investors. Second quarter sales, earnings, and backlog, which now stands at $3.7bn (€2.8bn), were close to analyst expectations.
How much of the 24 per cent year-on-year backlog growth is attributable to Pfizer, which signed a strategic deal with Parexel in May, is unclear. Parexel only referred to Pfizer in passing in its second quarter results.
“We are starting to hit our stride with recently-awarded strategic accounts, and with another quarter of strong new business wins in our backlog, I believe that we are well-positioned to deliver on our goals for fiscal year 2012”, Josef von Rickenbach, CEO of Parexel, said.
Pros and cons
The impact of Pfizer is likely to be discussed further in Parexel’s conference call later today. Working with Pfizer and other strategic partners has allowed Parexel to swell its backlog to record proportions but it has also taken on extra costs to manage the deals.
In the second quarter total costs increased 9 per cent. This drove income from operations down 20 per cent and some observers fear the negatives of strategic deals will outweigh the positives.
David Windley, equity analyst at Jefferies & Company, maintained his ‘hold’ rating on Parexel on the belief that backlog conversion will stay low, revenue targets are aggressive, and profitability will fail to recover.
Shares in Parexel rose 10 per cent in after-hours trading.