Charles River Laboratories International, Inc. (CRL) Earnings & Analysis

Latest quarter

Charles River reported third-quarter revenue of $982.7 million, above the consensus estimate of $956.8 million, and non-GAAP earnings per share of $3.09, above the $2.98 consensus. CFO Glenn Coleman said both revenue and non-GAAP earnings exceeded the company’s prior outlook.

Revenue declined from $1.0 billion a year earlier; the filing attributed the decrease primarily to divestitures affecting Manufacturing, Research Models and Services (RMS), and Discovery and Safety Assessment (DSA). Coleman said DSA revenue grew 5.9% organically, supported by higher safety assessment study volume, while Manufacturing grew 7.4% organically. RMS revenue declined 0.6% organically, which Coleman attributed largely to lower North American small-model revenue and the timing of non-human primate shipments.

The filing shows operating margin rose to 20.6% from 13.3%, with benefits including the CDMO divestiture and lower accelerated amortization. Diluted earnings per share increased to $6.86 from $1.10; the filing attributed the increase in net income principally to a foreign-jurisdiction tax benefit and higher operating income. Charles River reported free cash flow of $207.3 million, up from $178.2 million, which Coleman attributed largely to working-capital timing.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Birgit Girshick said biopharmaceutical demand continued to improve as large clients reinvested in early-stage research and biotech funding recovered. She said revenue from both global biopharmaceutical and small and mid-sized biotechnology clients grew organically in the quarter. DSA proposal activity increased for a fifth consecutive quarter, while net bookings rose 32% year over year to $652 million, she said.

Girshick said the DSA net book-to-bill was 1.09x, its fourth consecutive quarter above 1x, and backlog increased to $2.03 billion. She said bookings were beginning to move through backlog into revenue. In RMS, she said uncertainty over government funding continued to pressure North American small-model volumes, although higher Insourcing Solutions revenue offset lower volumes in global academic and government accounts.

Asked about pricing, Girshick said Charles River was gradually reducing discounts in DSA proposals while maintaining its capture rate. She cautioned that newly booked work takes time to move through backlog and that she did not expect a major pricing benefit before the second half of 2027. CFO Glenn Coleman said DSA growth was currently coming from volume and that the company was working through staffing and non-human primate supply needs for additional studies.

On margins, Coleman said higher study volume and lower sourcing costs helped DSA, while the CDMO divestiture and higher sales helped Manufacturing. For the fourth quarter, he expects lower sourcing and fringe-related costs, along with seasonal Microbial Solutions sales, to support sequential margin improvement. Girshick said the company’s transformation program was expected to generate over $300 million in cumulative savings over the next four years.

Asked about supply, Girshick said the company’s farms cover roughly 80% of its estimated non-human primate usage and that it has enough supply for its long-range financial targets. Coleman said study timing and mix could affect DSA growth next year and that the company wanted greater visibility into the second half before commenting further on segment growth rates.

Guidance

Charles River raised its FY2026 organic revenue guidance to at least 1.5% growth and now expects reported revenue to decline 1.5%-2%, with divestitures driving the decline. Coleman raised the non-GAAP earnings-per-share outlook to $11.35-$11.55, citing third-quarter revenue performance and a lower expected tax rate.

For the full year, Coleman now expects DSA organic revenue growth above 2%, Manufacturing growth in the mid-single digits and an RMS organic decline in the low single digits. He also expects a non-GAAP tax rate of approximately 23%, at the lower end of the prior range.