September 4, 2008 / 12:30 PM / in 9 years

MDS slashes outlook as it slips to loss

TORONTO (Reuters) - MDS Inc MDS.TO reported weaker third-quarter results and slashed its full-year outlook on Thursday as the health sciences company copes with slower than expected revenue at its Pharma Services contract research division.

MDS, which specializes in analytical instruments, molecular imaging and contract research, now expects full-year revenue in the range of $1.23 billion to $1.25 billion. That is down from its previous outlook of $1.25 billion to $1.29 billion.

The company also said it saw earnings per share in the range of 15 cents to 23 cents for fiscal 2008, down considerably from its previous outlook of 37 cents to 45 cents.

The company said in June that it planned to cut about 210 jobs at its Pharma Services and MDS Analytical Technologies divisions amid slowing demand for high-end medical instruments and ongoing regulatory issues at its Montreal facility.

“The conversion to revenue and earnings growth (in the Pharma Services group) is taking longer than expected, which is not where we want to be,” President and Chief Executive Stephen DeFalco said on a conference call.

For its third quarter, ended July 31, MDS said it lost $10 million, or 8 cents a share, compared with a profit of $7 million, or 6 cents, for the same period last year.

On an adjusted basis, it had earnings of 6 cents a share.

Revenue was $298 million, down from $308 million.

Analysts had expected, on average, earnings of 9 cents a share and revenue of $337 million, according to Reuters Estimates

“The performance at Pharma Services is the big thing,” said John Maletic, an analyst at Scotia Capital. “It is taking a lot longer to materialize than we had hoped.”

Investors showed disappointment in the results and the slow turnaround, knocking the shares down 4.5 percent to C$15.02, not far off the July 28 year low of C$13.81.

The quarter included an $8 million charge related to its restructuring plans at the Pharma Services and Analytical Technologies divisions.

The remainder of the charges are expected to be absorbed in the fourth quarter.

MDS bolstered its analytical division in 2007 with the $615 million purchase of Molecular Devices Corp, a U.S-based maker of high-performance measurement tools for the biotech industry.

Since then, it has struggled with falling demand for some of its products.

In early June, MDS cut its 2008 financial forecast amid softening demand for high-end medical instruments.

($1=$1.06 Canadian)

Reporting by Scott Anderson; editing by Rob Wilson

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