Charles River (CRL) Down 6.1% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Charles River Laboratories (CRL). Shares have lost about 6.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Charles River due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Charles River Q2 Earnings Beat, Guidance Narrowed
Charles Riverreported adjusted earnings per share of $2.69 for second-quarter 2023, reflecting a 2.9% decline from the year-ago earnings. The metric however surpassed the Zacks Consensus Estimate by 2.3%.
On a GAAP basis, earnings declined 11.3% year over year to $1.89 per share.
The year-over-year decline was primarily due to non-operating items, including increased interest expense and a higher tax rate as well as the impact of the Avian Vaccine divestiture.
Revenues
Revenues in the second quarter totaled $1.06 billion, beating the Zacks Consensus Estimate by 1%. The top line improved 8.9% from the year-ago number (up 11.2% organically, excluding the impact of acquisition, divestiture and foreign currency translation).
Segment in Detail
Charles River’s second-quarter total Research Models and Services (RMS) revenues of $209.9 million were up 12.6% year over year (up 13.9% organically). Organic revenue growth was driven by broad-based growth of research models in all geographies, particularly in China, as well as research model services, primarily the Insourcing Solutions business. Our model estimated the RMS business to grow 9.2% on a reported basis (10% growth organically) in the second quarter.
Discovery and Safety Assessment (DSA) revenues of $663.5 million rose 12.1% (up 11.7% organically). Organic revenue growth was mainly driven by growth in the Safety Assessment business on meaningful price increases and higher study volume. Going by our model, the DSA business was expected to register 6.3% growth in the second quarter (10% growth organically).
Manufacturing Solutions revenues totaled $186.5 million, down 4.2% year over year (up 6.6% organically). The organic revenue growth was primarily driven by the contract development and manufacturing organization and Microbial Solutions businesses.
Margins
The gross profit in the reported quarter was $398.9 million, up 11.8% from the prior-year quarter. Gross margin of 37.6% expanded 98 basis points (bps) year over year despite a 7.2% rise in the total costs of the company.
Selling, general & administrative expenses soared 51.7% to $199.8 million.
Adjusted operating income totaled $199.2 million, reflecting an 11.5% decline from the prior-year quarter. The adjusted operating margin in the second quarter contracted 433 bps to 18.8%.
Liquidity and Cash Position
Charles River exited the second quarter with cash and cash equivalents of $200.4 million compared with $201.6 million at the end of the first quarter.
Cumulative net cash provided by operating activities at the end of the second quarter was $257.5 million compared with the prior-year period’s $252.1 million.
2023 Guidance
The company has narrowed its 2023 guidance.
For 2023, revenue growth is now expected in the band of 2.5-4.5% (from the earlier band of 2-4.5%) on a reported basis. Organic revenue growth is expected in the range of 5.5-7.5% (5-7.5%). The Zacks Consensus Estimate for total revenues is pegged at $4.11 billion, indicating a 3.4% rise from 2022.
Adjusted earnings per share for 2023 is now expected in the range of $10.30-$10.90 ($9.90-$10.90). The current Zacks Consensus Estimate is pegged at $10.33
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Charles River has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Charles River has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Charles River is part of the Zacks Medical Services industry. Over the past month, Avantor, Inc. (AVTR), a stock from the same industry, has gained 0.7%. The company reported its results for the quarter ended June 2023 more than a month ago.
Avantor, Inc. reported revenues of $1.74 billion in the last reported quarter, representing a year-over-year change of -8.7%. EPS of $0.28 for the same period compares with $0.37 a year ago.
For the current quarter, Avantor, Inc. is expected to post earnings of $0.25 per share, indicating a change of -26.5% from the year-ago quarter. The Zacks Consensus Estimate has changed -3.5% over the last 30 days.
Avantor, Inc. has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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