IMS Health's Guidance Not What the Doctor Ordered

Mid Cap and Large Cap Watch List member IMS Health (RX) delivered 14% revenue and 15% operating income growth in the first quarter:

IMS Health, the world’s leading provider of market intelligence to the pharmaceutical and healthcare industries, today announced first-quarter 2007 revenue of $510.3 million, up 14 percent or 11 percent on a constant- dollar basis, compared with revenue of $446.2 million for the first quarter of 2006.

First-quarter 2007 diluted earnings per share on a GAAP basis was $0.43, compared with $0.56 in the prior-year quarter. Earnings per share for the first quarter of 2007 and 2006 included tax benefits and foreign exchange hedge gains and losses. When adjusted for these items, on a non-GAAP basis, earnings per share for this year’s first quarter would have grown $0.04 year over year to $0.35.

Consensus estimates called for $0.34 on $491 million in sales, both of which were nicely exceeded. However, the guidance issued on the conference call did not follow suit:

Constant dollar revenue growth of 9% to 11%, constant dollar operating income growth of 9% to 11%, full year GAAP EPS of $1.56 to $1.60, and free cash flow of $290 million to $325 million. With this strong Q1 performance, we continue to be comfortable with our full year guidance.

Confirming rather than raising guidance of 9% to 11% revenue growth when the first quarter had 14% (and beat estimates by nearly 4%) indicates things may slow down later in the year. And with consensus at $1.59 (the high end of EPS guidance), investors were probably hoping for an indication that the penny surprise would be followed by similar ones later in the year.

RX 1-yr chart: