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Covance now expects 2008 full-year earnings per share to be $3.02 on low double-digit revenue growth versus the previous expectation of earnings per share of $3.18 on low-teens revenue growth (both EPS targets exclude the gain from the sale of centralized ECG services). Adjusted net book-to-bill in the fourth quarter is currently forecasted to be in-line with the third quarter level of 1.2:1.
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"Despite the fact that both the volume and dollar value of proposal activity for our late-stage service offerings are increasing in the fourth quarter on a sequential and year-on-year basis, we are experiencing reduced demand for our early development services due to a combination of a lower level of new project initiations and increased project delays," said Joe Herring, Chairman and Chief Executive Officer. "In addition, as nearly 40% of our revenues originate overseas, our fourth quarter results are being significantly impacted by the continued rapid strengthening of the US dollar, even since we last updated our outlook in October."
Covance expects full-year 2009 revenue growth to be in the range of approximately 5% to 10% over 2008 and earnings per share to be in the range of $3.00 to $3.20. These results assume foreign exchange rates remain at budgeted levels throughout 2009, which would negatively impact year-on-year growth in revenue by approximately $100 million and earnings per share by $0.27 versus the average 2008 exchange rates. Excluding the impact of foreign exchange, revenue growth is expected to be in the range of approximately 10% to 15% and earnings growth is expected to be in the range of approximately 8% to 15%. Looking to the first quarter of 2009, we expect a modest sequential decline in earnings per share from the fourth quarter of 2008, relating largely to new operations coming online.
"The extraordinary strengthening of the US dollar will have a significant impact on our results in 2009," continued Mr. Herring. "Additionally, the slower project starts in early development are expected to continue into the first quarter and perhaps longer. The combination of these two issues is expected to more than offset the expected growth of our late-stage development services next year. Despite these near-term challenges, we continue to remain positive on our longer-term outlook. Our clients have an urgent need to develop new medicines and improve the productivity of their R&D methods. We believe Covance is the best-positioned CRO to help our pharmaceutical and biotechnology clients increase their R&D productivity, make cost structures more flexible, and reduce the time and cost of bringing a new drug through all stages of the development process."
Capital expenditures in 2009 are expected to be approximately $200 million, down $115 million from the $315 million target for 2008. Free cash flow (defined as operating cash flow less capital expenditures) in 2009 is expected to be approximately $90 million versus the expected use of $25 million in 2008. Both free cash flow targets assume DSOs remain at their current level of approximately 40 days.
The effective tax rate for 2009 is expected to be approximately 29%.
The Company's investor conference call will be webcast on December 18 at 9:00 am EST. Management's commentary and presentation slides will be available through www.covance.com.
Covance, with headquarters in Princeton, New Jersey, is one of the world's largest and most comprehensive drug development services companies with annual revenues greater than $1.5 billion, global operations in more than 20 countries, and approximately 9,600 employees worldwide. Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at www.covance.com.
Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements including the statements contained herein regarding anticipated trends in the Company's business are based largely on management's expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company's ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss of large contracts, risks associated with acquisitions and investments, the Company's ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, and other factors described in the Company's filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no duty to update any forward looking statement to conform the statement to actual results or changes in the Company's expectations.
SOURCE Covance Inc.
