Charles River (CRL) Beats on Q3 Earnings, Guidance Upped
Charles River Laboratories (CRL) reported third-quarter 2014 earnings (excluding special items) of 86 cents per share, easily beating the Zacks Consensus Estimate of 80 cents and up from 79 cents in the year-ago quarter.
Charles River Laboratories International, Inc - Earnings Surprise | FindTheBest
Earnings benefitted from higher sales, a lower tax rate and the benefit of stock repurchases.
Charles River’s net revenues increased 12.1% year over year to $327.6 million in the third quarter, surpassing the Zacks Consensus Estimate of $326 million. Foreign currency movements positively impacted revenues by 0.4% in the third quarter of 2014.
Quarter in Detail
We remind investors that in Mar 2014, Charles River had entered into a definitive agreement to acquire the contract research organization (CRO.V) services division of Galapagos NV.
The CRO division of Galapagos NV includes the businesses of Argenta and BioFocus. The acquisitions were completed in Apr 2014. Located in the UK and Netherlands, both these businesses specialize in integrated drug discovery services from target discovery through the delivery of clinic-ready candidates to a broad range of pharmaceutical and biotechnology companies.
The acquisitions of Argenta and BioFocus contributed 8% to the top line in the third quarter of 2014. Following the acquisitions, Charles River revised its reporting segments to ensure better alignment with the modified business. Charles River now operates through three segments – Research Models & Services (:RMS), Discovery and Safety Assessment (:DSA) and Manufacturing Support (Manufacturing).
Revenues from the RMS segment were $124 million in the third quarter of 2014, roughly flat from the year-ago quarter as increased sales in North America were offset by lower sales in Europe and Japan.
Revenues from the DSA segment were $140.9 million in the third quarter, up 25.1% year over year driven by the acquisition of Argenta and BioFocus. The growth in revenues was also driven by strong demand for the company’s safety assessment services from mid-tier clients.
Revenues from the Manufacturing segment were $62.7 million, up 13.4% year over year.
During the third quarter of 2014, Charles River repurchased 380,300 shares for $20.4 million, subsequent to which the company has $28.5 million remaining under its $1.0 billion repurchase program.
ChanTest Acquisition
On Oct 29, 2014, Charles River acquired ion channel testing services provider, ChanTest Corporation, for $52 million in cash along with milestone payments of $2 million.
The acquisition is not likely to affect the top and bottom line in 2014. It is, however, expected to add approximately 1% to the top line and be moderately accretive to the bottom line in 2015.
2014 Guidance Updated
Charles River now expects sales growth of 10%–11% in 2014 (old guidance: 9%–11%). Charles River now expects adjusted earnings per share in the range of $3.33–$3.38, up from the earlier estimate of $3.25–$3.35. The current Zacks Consensus Estimate of $3.32 per share falls short of the company’s increased guidance range.
Our Take
We are encouraged by the third-quarter beat driven by higher revenues.The integration of Argenta and BioFocus is on track and the recent acquisition of ChanTest will further boost results. We are positive on the company’s annual guidance and expect a strong performance in the remainder of 2014.
Currently, Charles River carries a Zacks Rank #2 (Buy). Other stocks that are well placed in the broader health care sector include Allergan (AGN), AbbVie (ABBV) and Bristol-Myers Squibb Company (BMY). All three carry a Zacks Rank #2.
Read the Full Research Report on BMY
Read the Full Research Report on AGN
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