Mixed 4Q for Charles River

Zacks

Charles River Laboratories (CRL) reported fourth quarter 2012 earnings (excluding special items) of 64 cents per share, beating the Zacks Consensus Estimate of 60 cents. Earnings declined 7.2% from the year-ago earnings of 69 cents due to lower revenues.

Charles River’s net sales of $280.1 million decreased 3.7% year over year in the fourth quarter of 2012.

Net sales missed the Zacks Consensus Estimate of $283 million. The fourth quarter of 2011 had an additional week, which reduced reported sales growth by approximately 4.3% in the fourth quarter of 2012.

Foreign currency movements negatively impacted sales by 0.7% in the fourth quarter of 2012.

For 2012, earnings (excluding special items) came in at $2.74 per share, up from $2.56 in 2011 and easily beating the Zacks Consensus Estimate of $2.70 per share. Net sales decreased 1.1% to $1.129 billion in 2012, marginally missing the Zacks Consensus Estimate of $1.134 billion.

Quarter in Detail

Charles River operates through two segments - Research Models & Services (:RMS) and Preclinical Services (PCS).

Revenues from the RMS segment were $171.8 million in the fourth quarter, down 5.8% from the prior-year period. As mentioned above, an additional week in the fourth quarter of 2011 reduced sales growth in this segment by approximately 4.1% and foreign currency movements reduced it by an additional 1.4% in the fourth quarter of 2012.

Excluding these two factors, RMS segment revenues declined 0.3% year over year. The decrease in RMS segment was due to lower sales of research models, which was partially offset by stronger sales for the Endotoxin and Microbial Detection (EMD) business, which included the acquisition of Accugenix.

Revenues from the PCS segment were $108.3 million in the fourth quarter, flat year over year. An additional week in the fourth quarter of 2011 reduced sales growth in this segment by approximately 4.6% while foreign currency movements increased sales growth by 0.4% in the fourth quarter of 2012. Excluding these two factors, PCS segment revenues increased 4.0% year over year driven by increased sales to strategic relationship clients and mid-tier clients.

During the fourth quarter of 2012, Charles River repurchased shares worth $18.6 million (approximately 483,000 shares) subsequent to which the company has $54.8 million remaining under its $750 million repurchase program.

Outlook for 2013

Charles River updated its guidance for 2013. The company continues to expect adjusted earnings per share between $2.80 and $2.90 per share. This guidance excludes extraordinary charges primarily related to the company’s PCS facility in Massachusetts. The Zacks Consensus Estimate of $2.88 per share is towards the upper end of the company’s guidance range.

Charles River upped its 2013 net sales guidance. The company will no longer be affected by foreign exchange translations. Hence, sales growth is now expected to be around 4.0% – 6.0% (previous projection: 3.5% – 5.5%).

Currently, Charles River carries a Zacks Rank #3 (Hold). Right now Covance Inc (CVD), Omnicare Inc. (OCR) and Parexel International Corporation (PRXL) look better placed with a Zacks Rank #2 (Buy).

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