MDS reported fiscal 1Q adjusted EPS of $0.06, $0.01 below us and consensus on lower
than expected revenues offset by savings from streamlining efforts. Softness came from
Analytical Technology and Pharma Services while revenue at Nordion continued to
benefit from increased isotope demand due to a EU reactor shutdown. Restructuring and
productivity initiatives delivered $14 million in savings in the quarter, though visibility
remains a challenge here and will likely remain so near-term. Net, we remain Neutral but
are lowering our 2009 EPS to $0.32 with no change to 2010-2011 EPS.
Implications
Key points: (1) Pharma Services continued to be impacted by late-stage delays, while
preclinical softness offsetted Phase I stability in early stage – management admitted to low
visibility but maintains that Phase I is holding up strongly. Adjusted EBITDA was flat at
$8 million due to cost savings from FX and restructuring. Gross bookings of $104 million
decreased 41% y/y with ending backlog declining 6% sequentially to $458 million,
impacted by both F/X and cancellations. (2) Analytical Technology revenue of $85
million was impacted in part by FX (nearly $9 million) but primarily by soft demand
across all product lines. Adjusted EBITDA of $13 million was down sequentially from
$17 million, driven by lower sales although partially offset by restructuring and move to
Asia. (3) Nordion's adjusted EBITDA of $18 million was driven by higher isotope sales
related to EU reactor shutdown which contributed $6 million to EBITDA compared to $5
million of negative impact from supplier disruptions last year.
Valuation
Our 6-month price target of $7 remains unchanged and based on weighted sum-of-the
parts (75%) and DCF (25%) analysis.
Key risks
Failure of CRO recovery, decrease in demand for analytical tools and F/X.
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its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment
decision.
March 13, 2009 Analyst Comment
2 Goldman Sachs Global Investment Research