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Charles River (CRL) Q2 Earnings Top Estimates, 2022 View Cut

·5 min read

Charles River Laboratories International, Inc. CRL reported adjusted earnings per share (EPS) of $2.77 for second-quarter 2022, reflecting a 6.1% improvement from the year-ago earnings. The metric surpassed the Zacks Consensus Estimate by 1.1%.

In the quarter, higher revenue and operating margin improvement were partially offset by higher interest expense and tax rate.

On a GAAP basis, earnings surged 23.8% year over year to $2.13.

Revenues

Revenues in the second quarter totaled $973.1 million, missing the Zacks Consensus Estimate by 2.5%. However, the top line improved 6.4% from the year-ago number (up 9.5% 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 $186.4 million were up 5.5% year over year (up 8.5% organically). Organic revenue growth was driven by growth in research model services, particularly Insourcing Solutions (IS) and Genetically Engineered Models and Services (GEMS) business.

Discovery and Safety Assessment (DSA) revenues of $591.9 million rose 9.6% (up 12.9% organically). Organic revenue growth was mainly driven by strong contributions from Safety Assessment businessesand Discovery Services businesses.

Charles River Laboratories International, Inc. Price, Consensus and EPS Surprise

Charles River Laboratories International, Inc. Price, Consensus and EPS Surprise
Charles River Laboratories International, Inc. Price, Consensus and EPS Surprise

Charles River Laboratories International, Inc. price-consensus-eps-surprise-chart | Charles River Laboratories International, Inc. Quote

Manufacturing Solutions revenues totaled $194.8 million, down 1.5% year over year (up 1% organically). Organic revenue growth was fueled by higher revenues in the Biologics Testing and Microbial Solutions businesses, effectively offset by a revenue decline in the CDMO business.

Margins

The gross profit in the reported quarter was $356.7 million, up 4.3% from the prior-year quarter. The gross margin of 36.7% contracted 74 basis points (bps) year over year.

Meanwhile, selling, general & administrative expenses declined 23.2% to $131.7 million.

Adjusted operating income totaled $225 million, reflecting a 31.9% rise from the prior-year quarter. The adjusted operating margin in the second quarter expanded 448 bps to 23.1%.

Liquidity and Cash Position

Charles River exited the second quarter of 2022 with cash and cash equivalents of $200.3 million compared with $241.9 million at the end of Q1.

Cumulative net cash provided by operating activities at the end of the second quarter was $252.1 million compared with the prior-year quarter’s $356.8 million.

2022 Guidance Update

The company has reduced its 2022 guidance.

For 2022, revenues are now expected to grow in the band of 9-11% on a reported basis (a significant slash from the earlier guidance of 13.5-15.5%). Organic revenue growth is now expected in the range of 10-12% (12.5%-14.5% previously). The Zacks Consensus Estimate for total revenues is pegged at $4.02 billion, indicating a 13.5% rise from 2021.

Adjusted EPS for 2022 is expected in the range of $10.70-$10.95 ($11.50-$11.75 expected previously). The current Zacks Consensus Estimate is pegged at $11.50.

Our Take

Charles River exited the second quarter of 2022 with better-than-expected earnings but a revenue miss. The results highlighted 9.5% organic revenue growth, driven by strength across the DSA and Research Models and Services RMS business segments. Operating margin expansion and meaningful cash flow generation were the other upsides

On the flip side, a revenue decline in the CDMO business dragged Manufacturing Solutions revenues down. The significant slash in 2022, reflecting headwinds associated with the CDMO business, foreign exchange due to the strengthening U.S. dollar, and interest expense due to the rising interest rate environment, increases concern.

Zacks Rank and Key Picks

Charles River currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated DGX, Medpace Holdings, Inc. MEDP and Merck & Co. MRK.

Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported second-quarter 2022 adjusted EPS of $2.36, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $2.45 billion outpaced the consensus mark by 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quest Diagnostics has an earnings yield of 7.1% compared with the industry’s 3.2%. DGX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 12.1%.

Medpace Holdings, having a Zacks Rank #2, reported second-quarter 2022 adjusted EPS of $1.46, which beat the Zacks Consensus Estimate by 8.9%. Revenues of $351.2 million outpaced the consensus mark by 1.3%.

Medpace Holdings has an estimated growth rate of 22.7% for full-year 2022. MEDP’s earnings surpassed estimates in the trailing four quarters, the average being 17.3%.

Merck reported second-quarter 2022 adjusted earnings of $1.87 per share, beating the Zacks Consensus Estimate of $1.67. Revenues of $14.6 billion surpassed the Zacks Consensus Estimate by 5.4%. It currently has a Zacks Rank #2.

Merck has a long-term estimated growth rate of 10.1%. MRK’s earnings surpassed estimates in the trailing four quarters, the average surprise being 16.8%.


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