Quintiles IMS Holdings, Inc. :Q-US: Earnings Analysis: 2016 By the Numbers : February 16, 2017

Quintiles IMS Holdings, Inc. reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of Quintiles IMS Holdings, Inc. – PAREXEL International Corporation, Charles River Laboratories International, Inc., Bioanalytical Systems, Inc. and Thermo Fisher Scientific Inc. (PRXL-US, CRL-US, BASI-US and TMO-US) that have also reported for this period.

Highlights

  • Gross margins narrowed from 27.98% to 26.74% compared to the same period last year, operating (EBITDA) margins now 16.24% from 14.16%.
  • Year-on-year change in operating cash flow of 80.79% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from 11.94% to 12.04%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 6878 5743.56 5456.2 5100.04 4865.51
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 115 387.21 356.38 226.59 177.55
Earnings Growth (YOY) -70.3 8.65 57.28 27.62 -26.56
Net Margin 1.67 6.74 6.53 4.44 3.65
EPS 0.76 3.08 2.72 1.77 1.38
Return on Equity 2.7 N/A N/A N/A N/A
Return on Assets 0.92 10.71 11.18 7.97 7.19

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Earnings Growth Analysis

The company’s year-on-year earnings decline was driven by the drop in gross margins from 27.98% to 26.74%. This drop in earnings would have been worse were in not for operational cost control activities, which helped the operating margins (EBITDA margins) improve from 14.16% to 16.24%. For comparison purposes, gross margins were 27.98% and EBITDA margins were 14.16% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

Q-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 38.47 days from 47.41 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Q-US‘s change in operating cash flow of 80.79% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 11.94% to 12.04%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 9.38% to 6.96%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Quintiles IMS Holdings, Inc. is a biotechnology company, which engages in healthcare development in the provision of professional services, information technology, and partnering solutions to the pharmaceutical services and healthcare industries. The company was founded by Dennis Gillings and Gary Koch in 1982 and is headquartered in Durham, NC.

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