<% ' AvantGo:MarketClose %>DJIA 8823.82 -40.16 (-0.45%) S&P 500 1120.97 -7.29 (-0.65%) Nasdaq 1862.11 -3.51 (-0.19%) Value Line ndx 880.27 -5.50 (-0.62%) 30-Year Bond 99 12/32 unch 5.29% Yield (Bond market is closed for Veterans Day)<% ' AvantGo:End %>
<% ' AvantGo:Heroes %>Fox Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FOX)") else Response.Write("(NYSE: FOX)") end if %>, the spin-off of News Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWS)") else Response.Write("(NYSE: NWS)") end if %> U.S. movie and TV operations and sports teams, gained $2 to $24 1/2 from an initial public offering (IPO) price of $22.50 a share, a price that was in the middle of the estimated $21 to $24 range. Rupert Murdoch's media empire raised $2.81 billion from the sale of 124.8 million shares -- making it the third-largest IPO ever after the offerings for Conoco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COC)") else Response.Write("(NYSE: COC)") end if %> and Lucent Technologies (NYSE LU). Last month, News Corp. had said it would sell 13.4% of Fox shares, which was lower than the originally announced figure of "up to" 20%. Instead, the company unloaded 18.6% of Fox shares, with investor demand five times greater than the number of shares sold, according to Bloomberg. On Monday, Fox Entertainment reported an 104% increase in fiscal first quarter (ended September 30) net earnings to $57 million, or $0.10 a share. Revenues jumped 22% to $1.8 billion from $1.48 billion. For entertainment (and more information) on News Corp., check out our recent Dueling Fools, "Good News, Bad News Duel."
Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> powered up $6 1/8 to $103 11/16 today. The uncharted new-high territory comes after the company announced last night that it expects fourth quarter revenues to rise 8% to 10% from the previous quarter's $6.7 billion. Gross margin is also expected to exceed the high end of the company's 1998 goal of 50% -- it should reach 55%. The better-than-expected performance is due to strong demand for "PC products across all market segments and in all geographies." Assuming a 5% sequential increase in R&D spending to $650 million, a 33% tax rate, and no change in the diluted sharecount, earnings per share should reach $1.02 to $1.04. Current EPS estimates range from $0.88 to $1.00, according to IBES. Several PC makers benefited from the Intel news: Compaq Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> rose $1 5/8 to $34 1/2, Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> mustered up $1 5/8 to $71 15/16, and Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> picked up $1 7/8 to $65 5/8. For more on this story, see today's Fool Plate Special.
The latest Internet IPO, EarthWeb Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EWBX)") else Response.Write("(Nasdaq: EWBX)") end if %>, soared ahead $34 11/16, or 247.8%, to $48 11/16 in heavy trading from an initial offering price of $14 a share, which was at the top of the estimated $12 to $14 range. The four-year-old company, which provides online information and services to computer programmers, developers, and technicians, sold 2.1 million shares, or a 27% stake, in the offering and raised $29.4 million. EarthWeb follows in the footsteps of online auctioneer eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %>, whose shares tripled in its first day of trading when it went public in late September. EarthWeb's flagship online service, developer.com (available in five languages), provides users with such offerings as technical reference libraries, resource directories, discussions, news, and shopping.
QUICK TAKES: Elsewhere in IPO-land, MONY Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MNY)") else Response.Write("(NYSE: MNY)") end if %>, formerly known as Mutual Life Insurance Co. of New York, gained $4 5/8 to $28 1/8 from an initial offering price of $23.50 a share. The group is remaking itself as a stock life insurance company from a mutual life insurance company... Entertainment and consumer products retailer and direct marketer K-tel International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KTEL)") else Response.Write("(Nasdaq: KTEL)") end if %> surged yet another $9 11/16 to $32 5/8 following yesterday's news that its K-Tel Express home shopping service will be included on the Microsoft Network's shopping channel. Rival online music vendor N2K Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTKI)") else Response.Write("(Nasdaq: NTKI)") end if %> rocketed up $3 1/8 to $12 7/16, and N2K merger partner CDnow <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDNW)") else Response.Write("(Nasdaq: CDNW)") end if %> soared $2 3/4 to $14 3/4... Software developer Concentra Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTRA)") else Response.Write("(Nasdaq: CTRA)") end if %> surged $3 5/16, or 93%, to $6 7/8 after announcing it will be acquired by database software maker Oracle Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> for $43 million, or $7 per share, in cash. Oracle gained $2 to $33 1/2.
Semiconductor maker and digital signal processing solutions company Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> picked up $5 9/16 to $69 7/16 on Intel's positive earnings news as well as an "outperform" rating in new coverage by Morgan Stanley Dean Witter... Casual apparel retailer Abercrombie & Fitch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANF)") else Response.Write("(NYSE: ANF)") end if %> was shopped up $1 1/2 to $50 on the heels of reporting Q3 EPS of $0.47, a 135% increase from $0.20 in the year-earlier period and ahead of analysts' expectations of $0.35. Total sales jumped 55% to $229.7 million, while comparable-store sales were up 35%... Movie theater operator Carmike Cinemas <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKE)") else Response.Write("(NYSE: CKE)") end if %> climbed $1 3/4 to $21 5/16 after reporting Q3 EPS of $0.77, a nickel more than last year and $0.02 ahead of analysts' mean estimate... Biotechnology firm Oxigene Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXGN)") else Response.Write("(Nasdaq: OXGN)") end if %> rose $4 3/4 to $10 7/8 after saying it has started the first stage of U.S. clinical trials for its Combretastatin cancer treatment.
British phone giant Cable & Wireless PLC's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CWP)") else Response.Write("(NYSE: CWP)") end if %> American depositary receipts added $1 3/16 to $33 3/16 after the company said pretax profit, excluding unusual items, increased 5% percent to �788 million from �751 million, beating the average estimate of �766 million... Wireless communications provider Omnipoint Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OMPT)") else Response.Write("(Nasdaq: OMPT)") end if %> connected for a $1 19/32 gain to $9 13/32 after yesterday announcing it has settled allegations that it rigged bids in Federal Communications Commission auctions of digital wireless service licenses, without admitting guilt or paying any penalties. The company also said it's currently negotiating with "multiple potential strategic partners"... EchoStar Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DISH)") else Response.Write("(Nasdaq: DISH)") end if %> beamed up $2 to $34 after announcing an 81% increase in Q3 revenues year-over-year, though the satellite TV company reported a Q3 loss of $1.35 a share, compared with last year's loss of $2.78 and analysts' expectations of a loss of $1.44.
Natural gas provider North Carolina Natural Gas Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NCG)") else Response.Write("(NYSE: NCG)") end if %> advanced $8 5/8 to $32 1/4 after agreeing to be acquired by power plant operator Carolina Power & Light <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPL)") else Response.Write("(NYSE: CPL)") end if %>, which fell $1 7/16 to $46 1/8, in a stock swap valued at about $354 million. The deal is expected to be accretive to Carolina Power's earnings... Steel of West Virginia <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SWVA)") else Response.Write("(Nasdaq: SWVA)") end if %> hammered out a gain of $4 to $10 3/8 after announcing it will be acquired by Roanoke Electric Steel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RESC)") else Response.Write("(Nasdaq: RESC)") end if %> for $10.75 per share in cash plus the assumption of debt. The deal is valued at around $116.7 million... Keithley Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KEI)") else Response.Write("(NYSE: KEI)") end if %> played up a gain of $1 5/16 to $6 15/16 after the measurement devices maker for the semiconductor, telecommunications, and electronic components industries announced plans to buy back up to 2 million shares, or 40% of its outstanding stock, for $5.75 to $7 each.
Online retailer Shopping.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IBUY)") else Response.Write("(Nasdaq: IBUY)") end if %> gained $1 1/2 to $6 after announcing that its fiscal Q3 revenues increased 207% from the previous quarter to $2.15 million. It expects to announce official Q3 results on or before December 15... Office Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %> booked a $2 3/16 gain to $29 1/2 after Prudential Securities reiterated its "strong buy" rating on the office supply retailer, with a 12-month price target of $38... Contact lenses direct marketer 1-800 CONTACTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTAC)") else Response.Write("(Nasdaq: CTAC)") end if %> surged $3 5/16, or 36.3%, to $12 7/16 after announcing Q3 results "in line with internal forecasts" and saying it expects to meet Q4 targets as well. The company reported a Q3 loss of $0.38 per share versus pro forma earnings of $0.04 and analysts' mean estimate of a loss of $0.36.
VocalTec Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VOCLF)") else Response.Write("(Nasdaq: VOCLF)") end if %> gained $3 3/8 to $13 3/8 after saying it has teamed up with Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> to jointly develop interoperability between their IP telephony solutions based on the International Telecommunications Union H.323 Version 2 international standard... Internet information systems company Wall Data <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WALL)") else Response.Write("(Nasdaq: WALL)") end if %> jumped $2 7/8 to $16 3/8 after announcing Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> will resell its Cyberprise and Enterprise product lines through HP's North American Complementary Products Organization.<% ' AvantGo:End %>
<% ' AvantGo:Goats %>A cautious outlook combined with disappointing quarterly results hurt shares of contract nonclinical pharmaceutical testing firm BioReliance Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BREL)") else Response.Write("(Nasdaq: BREL)") end if %>, which fell $2 13/16 to $7 3/8 after the company reported Q3 EPS of $0.14, even with last year's number but $0.03 below the Street's projections. CEO Capers McDonald said in a statement that Q4 results are "unlikely to reflect growth higher than in previous quarters this year" because of the timing of client projects and slower-than-anticipated development of some services. In other news, CFO Mike Thomas is leaving and will be replaced by Patrick Spratt, a former executive at Compaq Computer's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> Digital Equipment Corp. Morgan Stanley cut BioReliance to "outperform" from "strong buy" today, while Hambrecht & Quist cut the company to "buy" from "strong buy."
Healthcare marketing and communications services company Healthworld Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HWLD)") else Response.Write("(Nasdaq: HWLD)") end if %> plummeted $3 1/4 to $11 7/8 today after it warned that fourth-quarter results were likely to end a four-quarter run of meeting or beating Wall Street's earnings expectations. CEO Steven Girgenti said Healthworld doesn't see Q4 EPS coming in above $0.20; the four analysts surveyed by First Call expected Q4 EPS of $0.24. "While our results and progress met expectations within our communications business," Girgenti said in a statement, "it is taking longer than anticipated to generate a positive contribution from the medical contract sales group." Meanwhile, the firm said its Q3 EPS was $0.20, even with market projections.
QUICK CUTS: Online services provider and Fool Port holding America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> disconnected for $7 3/8 to $137 1/8 following its announcement that it acquired privately owned consumer decision guide company PersonaLogic Inc. Terms were not reported...Online community operator GeoCities <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GCTY)") else Response.Write("(Nasdaq: GCTY)") end if %> lost $4 11/16 to $37 11/16 after it announced an agreement to buy privately owned Starseed Inc., also known as member group or "ring" technology developer WebRing, for $2 million in cash and 775,000 shares of company stock... Online auction hotshot eBay Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %>, a recent Daily Double, cooled off $14 15/16 to $115 15/16 today after Donaldson, Lufkin & Jenrette downgraded the company to "market perform" from "buy."
Other Internet stocks taking a break from their recent breakneck climbs included Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>, which gave back $5 1/8 to $126 5/8; Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %>, off $4 to $32 3/8; Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %>, down $5 9/16 to $48 13/16; Mindspring Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSPG)") else Response.Write("(Nasdaq: MSPG)") end if %>, which slipped $5 5/8 to $51 3/4; and RealNetworks Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RNWK)") else Response.Write("(Nasdaq: RNWK)") end if %>, which lost $6 1/8 to end at $41 5/8... Computer manufacturer Gateway Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> moo-ved down $1 7/16 to $57 3/16 despite being initiated with a "buy" rating by BT Alex. Brown. Click here for an in-depth look at the company's recent third-quarter results... Audio books direct marketer Audio Book Club <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: KLB)") else Response.Write("(AMEX: KLB)") end if %> returned $1 5/8 to end at $9 1/2 after it reported Q3 net losses of $0.30 per share, compared with losses of $0.41 per share last year.
Aerospace and defense contractor Lockheed Martin <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LMT)") else Response.Write("(NYSE: LMT)") end if %> dove $5 1/16 to $101 15/16 on credibility concerns following reports that it noted an accounting adjustment responsible for about a quarter of its Q3 EPS in its quarterly filing with the SEC without mentioning it in its earnings press release... Hotel real estate investment trust (REIT) Patriot American Hospitality <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAH)") else Response.Write("(NYSE: PAH)") end if %> shed $15/16 to $7 3/16 following reports that its lead investment banker, PaineWebber Inc., has stepped away from that role. Morgan Stanley Dean Witter replaces PaineWebber... Frontier Insurance Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTR)") else Response.Write("(NYSE: FTR)") end if %>, which sells specialty property and casualty insurance, tumbled $2 to $15 5/8 after it said Q3 operating income was $0.40 per share, $0.02 above last year but $0.03 short of estimates. The Fool took a long look at companies like Frontier in yesterday's Fool on the Hill... Supply-chain management software developer i2 Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITWO)") else Response.Write("(Nasdaq: ITWO)") end if %> fell $2 1/8 to $23 11/16 after Prudential Securities downgraded the company to "hold" from "accumulate."
Promotional marketing company Cyrk Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYRK)") else Response.Write("(Nasdaq: CYRK)") end if %> gave away $3/4 to $9 3/8 following its announcement of Q3 losses of $0.02 per share, compared with earnings of $0.01 per share last year... Dental office manager Monarch Dental <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDDS)") else Response.Write("(Nasdaq: MDDS)") end if %> chipped off $1 9/16 to $12 1/2 after it reported Q3 EPS of $0.16, more than double last year's $0.07 (before charges) figure but just flat with the market's consensus estimate... Rechargeable lithium battery researcher Valence Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VLNC)") else Response.Write("(Nasdaq: VLNC)") end if %> ran down $21/32 to $7 21/32 after it said its fiscal Q2 net loss was $0.15 per share, better than last year's loss of $0.26 per share. Research and development costs increased to $4.7 million from $4.4 million a year ago... Broadband network systems company International FiberCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFCI)") else Response.Write("(Nasdaq: IFCI)") end if %> stumbled $23/32 to $8 1/4 after it reported Q3 EPS of $0.11 (before acquisition-related costs), up from $0.06 last year and flat with Wall Street's consensus estimate.
Video duplication and distribution company VDI Media <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VDIM)") else Response.Write("(Nasdaq: VDIM)") end if %> lost $1 3/16 to $7 15/16 after it reported Q3 EPS of $0.16, beating last year's $0.10 number but missing analysts' consensus figure by $0.02... Oil and gas drilling contractor Pride International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PDE)") else Response.Write("(NYSE: PDE)") end if %> leaked $1 7/16 to $10 after Southwest Securities downgraded it to "accumulate" from "buy"... Disk arrays and SCSI adapters designer Ciprico Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPCI)") else Response.Write("(Nasdaq: CPCI)") end if %> slipped $11/16 to $7 following its announcement of fiscal Q4 losses of $0.04 per share, well off last year's profits of $0.16 per share and Wall Street's projected profits of $0.03 per share.<% ' AvantGo:End %>
FOOL
ON THE HILL
An Investment Opinion
by
Louis Corrigan
Parexel's Trials
<% ' AvantGo:FOTH %>Parexel International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRXL)") else Response.Write("(Nasdaq: PRXL)") end if %> is the number three provider of contract research for the pharmaceutical and biotech industry based on annual sales. With the market for contract research organizations (CRO) growing at 20% to 25% a year and many of the largest players gaining market share as pharmaceutical companies parcel out increasing amounts of clinical trials management and even marketing and sales functions, Parexel would seem to be well-positioned. Yet the trials its investors have lived through are enough to leave them feeling like guinea pigs.
On October 29, Parexel reported that fiscal Q1 revenue rose 32% to $82.8 million, or 62% before the restatement of year-ago period results due to acquisitions. Earnings per share increased 22% to $0.22. Unfortunately, that was two cents shy of estimates. Worse yet, management indicated that revenue and EPS growth will decline to 20% to 25% in the current quarter before turning up in ensuing quarters to register in the 25% to 30% range for all of FY99. After the 41% EPS growth Parexel delivered in FY98 and the 30% plus gains analysts had been expecting, this was an unpleasant wake-up call.
Parexel shares plunged on the open, trading as low as $20 1/4 before ending the day down $15 3/16 (42%) at $21 1/16 on extraordinary volume of over 16 million shares. Other leading contract research firms got whacked, too. Market leader Quintiles Transnational <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QTRN)") else Response.Write("(Nasdaq: QTRN)") end if %> closed down $5 3/4 to $42 1/4 despite reporting estimate-beating results just the week before. Number four player Pharmaceutical Product Development <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PPDI)") else Response.Write("(Nasdaq: PPDI)") end if %> sank $4 3/4 intraday to $23 5/8 before ending the day down just a quarter at $28 3/8. Fast-growing Kendle International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KNDL)") else Response.Write("(Nasdaq: KNDL)") end if %> gave up $2 3/4 to close at $25. Only number two player Covance <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVE)") else Response.Write("(NYSE: CVE)") end if %> remained largely placid.
Investors should always follow a company's key competitors as well as its suppliers and customers since broad shifts in a sector eventually affect all participants to some degree. In some cases, though, the market draws industry-wide lessons from what's largely a company-specific problem. That's one reason why industry turmoil can give investors a chance to profit, as my Foolish compatriot Warren Gump discussed in this space last Friday and again on Monday.
That's especially true when the story that triggers the massacre looks far less disturbing on closer inspection. While it's often stupid to catch a falling knife, there are also plenty of cases where investors simply rush for the exits without paying enough attention to management's version of the story. In this case, not only have the innocent CRO victims largely recovered, but Parexel's shares have themselves also rallied for a 20% gain as more thoughtful investors stepped in.
Parexel's first quarter revenue fell about 3% short of expectations due to two factors: a period of flat orders in prior periods plus "extended start-up times for recently awarded large clinical programs," according to Chair/CEO Josef von Rickenbach.
For the five fiscal quarters ending with the March 1998 period, orders were relatively flat, in the $70 million to $75 million range. Yet orders have leapt of late, with $113 million in new business wins in the latest period and $110 million in the June quarter. With 25% to 35% of the revenue from these new wins consisting of very large multi-year contracts topping $20 million, the projects associated with these contracts are simply more complex and thus take longer to launch into the dynamic revenue phase.
As von Rickenbach and CFO Bill Sobo, Jr., repeatedly explained on the post-earnings conference call, the process of finishing the protocol design, defining the database, training personnel, and completing regulatory paperwork involves interaction between Parexel, the pharmaceutical client, and outside parties. The delayed start-ups had nothing to do with management talent, patient enrollment, or other factors more squarely in Parexel's control. There were no unusual customer cancellations or intentional delays by customers on contracted projects. Since Parexel recognizes revenue based on hitting certain contractual milestones, cash streams have simply been pushed out slightly.
Indeed, the company expects growth to pick up in the fiscal third quarter and to continue to improve thereafter. Part of the long-term story is that Parexel has made important investments in medical marketing services (MMS), such as the March acquisition of PPS Europe Limited, which nearly doubled its MMS operations. This gambit is only beginning to pay off. While the contract research unit (two-thirds of revenue) and consulting unit (one-sixth of revenue) grew at a 30% plus clip in the first quarter, the marketing biz is still showing just 20% plus growth. But management expects gains in marketing revenue could eventually outpace the company's overall growth rate.
While operating margins came in at 9.3% for Q1, flat with the June and year-ago periods, they're expected to rise to 9.5% for the whole of FY99 on the way to 10% plus thereafter. What's more, despite necessary investments to prepare for the increasing workload, gross margins actually came in on target at 35.1%. As one analyst on the conference call opined, the company would have actually beaten estimates had revenue come in as planned. In other words, the revenue shortfall was really the main problem and the company actually delivered record new orders for the period. Indeed, backlog is up 34% year-over-year.
On the downside, receivables rose to 65 days sales from 54 in the June period. Yet management sees days sales outstanding improving in the December quarter. It was partially the result of a rise in unbilled receivables connected to the large clinical trials projects. Chair von Rickenbach said these clients are amenable to what Parexel considers fair payment schedules, indicating that the firm doesn't see any evidence that pharmaceutical firms are attempting to use Parexel basically to finance part of their working capital needs.
Also worth noting is that Parexel's top five customers accounted for 44% of business in the period, up from 36% in June, as its largest client made up 15% of total revenue. Customer concentration is a hazard of the contract research industry, and it could get worse as large pharmaceutical firms establish preferred relationships with particular CROs. Yet Parexel did work for most of the top 20 pharmaceutical and top 10 biotech companies last year, and it's signed up new customers the last two quarters.
Since short-term hiccups often turn into longer-term problems, the market tends to discount management's soothing explanations. Often rightly so. Yet looking at Parexel's three-year chart, it's clear that declines of 30% to 40% are pretty common for this typically high P/E stock. In fact, before the latest gyrations, the stock fell 38% from its July high only to rise 83% off its August low. With analysts projecting 32% long-term growth for the company, it looks like a modest bargain at 27 times the revised consensus earnings estimate of $1.00 per share. Of course, the Q1 numbers left analysts skeptical of that long-term growth.
Still, Parexel has $69 million in cash and no debt, so it's in good shape for more acquisitions, which seem inevitable. The Q1 numbers really weren't bad. Management's explanations for the shortfall made sense. New business is rolling in at a record pace. Indeed, Parexel is one of the few companies capable of managing such large, complex clinical trials. If you think that pharmaceutical and biotech firms will continue to spend on R&D and that CROs will get more of this $40 billion annual pie than the roughly 10% they now claim, then Parexel's Q1 results may have actually provided plenty to feel good about.<% ' AvantGo:End %>
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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