PRXL Parexel International Corp.

PAREXEL International Corporation (PRXL) reported fiscal 2014-third-quarter adjusted earnings per share of 56 cents, beating the Zacks Consensus Estimate by 3 cents. Earnings also grew 12% from 50 cents recorded in the year-ago quarter. Adjusted net earnings grew 9.5% to $32.3 million from $29.5 million in the prior-year quarter.

On a reported basis, PAREXEL’s net earnings were $34.7 million or 60 cents per share, compared with $29.5 million or 50 cents per share recorded in the year-ago quarter. Improved gross margin across all business lines coupled with operating efficiency propelled strong results during the quarter.

Revenues

Revenues increased 10.4% to $578.0 million from $523.5 million in the third quarter of 2013, comfortably beating the Zacks Consensus Estimate of $492 million. Service revenues climbed 8.3% to $492.4 million from $454.5 million in the prior-year period. The positive impact from foreign exchange movements on revenues in the quarter was $1.8 million. The HERON acquisition contributed approximately $2.5 million to revenues in the quarter. On the other hand, Reimbursement revenues surged 24.1% to $85.5 million.

PAREXEL’s backlog was approximately $4.9 billion at the end of Mar 2014, an increase of 9.4% year over year. The reported backlog included gross new business wins of $781.6 million, cancellations of $208.7 million, and a positive impact from foreign exchange rates of $32.0 million during the quarter. Net new business wins grossed $572.9 million in the reported quarter while net book-to-bill ratio was 1.16 in the quarter.

Margins

In the third quarter of fiscal 2014, gross profit increased 18.7% to $169.2 million while gross margin improved 210 basis points (bps) to 29.3% from 27.2% in the prior-year quarter.

Adjusted selling, general and administrative (SG&A) expenses spiked 10.3% to $95.5 million year over year. However, as a percentage of sales, SG&A expenses remained flat at 16.5%.

Adjusted operating earnings escalated 42.5% to $53.2 million in the reported quarter while adjusted operating margin grew 210 bps to 9.2% from 7.1% recorded in the prior-year quarter.

Segment Details

On a geographic basis, The Americas; Europe, Middle East & Africa (EMEA), and Asia/Pacific contributed 49.8%, 37.6% and 12.6% to service revenues, respectively. Service gross margin grew impressively by 300 basis points (bps) to 34.4% from 31.4% in the prior-year quarter.

Service revenues from Clinical Research Services (CRS) rose 9.0% year over year to $373.2 million. Gross profit increased 23.5% to $118.0 million while service gross margin from this segment expanded 370 bps to 31.6%. Year-over-year revenue growth was driven partly by productivity and efficiency-related investments made in this business.

PAREXEL Consulting Services (PC) service revenues increased 2.5% to $51.9 million. Gross profit rose 6.3% to $21.5 million, while gross margin improved 150 bps to 41.4%.

Service revenues from the Perceptive Informatics (PI) segment increased 9.4% to $67.3 million. Gross profit grew 10.8% to $29.8 million and gross margin improved 60 bps to 44.3% in the quarter.

Balance Sheet

PAREXEL ended the third quarter of fiscal 2014 with cash and marketable securities of $298.7 million, up 3.6% from $288.4 million as of Mar 31, 2013.

The company’s long-term debt decreased 25.6% to $290.0 million from $390.0 million as of Mar 31, 2013. Consequently, long-term debt-to-capitalization ratio fell 11.2 percentage points to 30.2% from 41.4% a year ago.

Guidance

PAREXEL issued its outlook for the fourth quarter of fiscal 2014 and raised its outlook for the full fiscal year. Management expects fiscal fourth-quarter reported earnings per share and revenues in the range of 59 to 63 cents and $507 to $513 million, respectively. The Zacks Consensus Estimate for revenues of $500 million for the quarter lies below the guided range.

For fiscal 2014, PAREXEL increased its adjusted earnings per share guidance to a range of $2.11 to $2.15 from the prior range of $2.01 to $2.11. The current Zacks Consensus Estimate of $2.05 lies below the guided range. Management also increased reported earnings per share guidance to a range of $2.13 to $2.17 from the prior range of $1.99 to $2.09.

PAREXEL also raised its revenue guidance for fiscal 2014 to a range of $1,936 to $1,942 million from the prior range of $1,920 to $1,930 million. The current Zacks Consensus Estimate of $1,927 million lies below the guided range.

Our Take

We hold PAREXEL’s earnings and revenue beat for the third quarter of fiscal 2014 in a positive light. Operational improvements and positive new business results have led management to raise its earnings and revenue guidance for fiscal 2014.

Positive momentum in the marketplace, especially with mid and small clients, combined with healthy backlog and strategic operational initiatives provide a potential upside for PAREXEL going forward.

Zacks Rank

Currently, PAREXEL has a Zacks Rank #3 (Hold). Some better-ranked medical services stocks that are worth considering include Envision Healthcare Holdings, Inc. (EVHC), BioTelemetry, Inc. (BEAT) and BG Medicine, Inc. (BGMD). While Envision Healthcare Holdings and BioTelemetry sport a Zacks Rank #1 (Strong Buy), BG Medicine retains a Zacks Rank #2 (Buy).
 

 
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