Record revenue and earnings are typically music to investors' ears: not so this time around for Covance
Covance turned in net revenue of $341.5 million for the quarter, up 15.6% versus the same period last year. After factoring out a tax gain, earnings per share were $0.55, up 23.6% year over year (when stock options are removed from the equation). As for operating margin, it hit 14.4%, which was lower than the 14.9% reported in last year's third quarter. Still, after adjusting last year's operating earnings for new stock-related compensation rules, margin actually rose 90 basis points year over year.
Admittedly, Covance's breakneck growth does appear to be moderating. While a 23.6% increase in earnings is nothing to sneeze at, the firm sported a 30% rise in earnings in both the first and second quarters. Still, no cause for panic, Fools.
After all, Covance's current backlog of $2 billion is approaching twice the roughly $1.2 billion in revenue the firm reported last year. Although the company typically doesn't break out its client list, the mass of its backlog suggests that both smaller drug makers and larger firms like Eli Lilly
In addition, Covance is likely to have more capacity next year, which should help fatten the bottom line. Capital expenditures this year are expected to be between $130 million and $140 million. This is down from the $153 million expended in 2005, but well above expenditures in 2004 and 2003.
Covance may be settling into a stride after a long sprint. But given its massive backlog and innovative deal making, the drug development services outfit is positioned to keep up a respectable pace.
For more on Covance, check out these stories:
Fool contributor Brian Gorman does not own shares in any of the companies mentioned.