Charles River (CRL) Q4 Earnings Surpass, Margins Contract
Charles River Laboratories International, Inc. CRL reported fourth-quarter 2023 adjusted earnings per share (EPS) of $2.46, which reflected a 17.4% decrease year over year. However, the metric surpassed the Zacks Consensus Estimate by 2.9%.
On a GAAP basis, earnings declined 0.8% year over year to $3.62 per share. The year-over-year decrease in GAAP earnings was primarily due to lower revenues and operating income.
For the full year, adjusted EPS was $10.67 per share, down 4% from the year-ago period’s levels. The figure topped the Zacks Consensus Estimate by 0.9%.
Revenues
Revenues in the fourth quarter totaled $1.01 billion, beating the Zacks Consensus Estimate by 2.8%. However, the top line fell 7.9% from the year-ago quarter (down 3.5% organically, excluding the impact of acquisition, divestiture and foreign currency translation).
Total revenues for 2023 were $4.13 billion, up 3.9% from the year-ago period’s levels. The figure exceeded the Zacks Consensus Estimate by 0.7%.
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
Segments in Detail
The company reports through three segments: Research Models and Services (“RMS”), Discovery and Safety Assessment (“DSA”) and Manufacturing Solutions.
In the fourth quarter of 2023, RMS revenues of $195.8 million were down 0.2% year over year (down 0.4% organically). The organic revenue decrease was primarily due to lower small research model sales, particularly in North America and Europe, and lower revenues in the Cell Solutions business, partially offset by higher revenues for NHPs in China. Our model estimated RMS business revenues to be $184.9 million in the fourth quarter.
DSA revenues of $625.8 million fell 9.5% year over year (down 6% organically). The organic revenue decline was mainly due to a meaningful revenue drop in the Discovery Services business and lower Safety Assessment revenues, which were impacted by a difficult, prior-year growth comparison. Our model’s projected revenues for this segment were $627.9 million.
Manufacturing Solutions revenues totaled $191.9 million, down 9.5% year over year (up 2.3% organically). Organic revenue growth reflected higher revenues in the CDMO business, which was largely offset by lower revenues in the Biologics Testing Solutions and Microbial Solutions businesses. For the fourth quarter, our model projected revenues to be $181.6 million.
Margins
The gross profit in the reported quarter was $364.1 million, down 8.7% from the prior-year quarter. The gross margin of 35.9% contracted 34 basis points (bps) year over year despite a 7.4% fall in the total costs of the company.
Selling, general & administrative expenses fell 1.3% to $197.1 million. Adjusted operating income totaled $166.9 million, reflecting a 16.2% decline from the prior-year quarter. The adjusted operating margin in the fourth quarter contracted 164 bps to 16.5%.
Liquidity and Cash Position
Charles River exited the fourth quarter of 2023 with cash and cash equivalents of $276.8 million compared with $233.9 million at the end of 2022.
Cumulative net cash provided by operating activities at the end of the fourth quarter was $683.9 million compared with $619.6 million at the end of 2022.
2024 Guidance
Charles River initiated its outlook for 2024.
Total revenue growth is expected in the band of 1%-4% on a reported basis. Organic revenue growth is expected to be between flat and 3% range. The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $4.25 billion.
Adjusted EPS for 2024 is expected in the range of $10.90-$11.40. The Zacks Consensus Estimate for the metric is pegged at $10.94.
Our Take
Charles River exited the fourth quarter of 2023 with better-than-expected earnings and revenues. However, both the top and bottom lines registered a year-over-decline in the quarter.
Each of Charles River’s segments posted a declining revenue growth rate, which is disappointing. A contraction of both margins does not bode well for the stock. The company anticipates a certain level of constrained client spending to persist throughout this year.
On a positive note, Charles River is focused on innovation, enhancing its portfolio to support clients from target discovery to non-clinical development and delivering flexible solutions to respond to a changing industry and client requirements.
Zacks Rank and Key Picks
Charles River currently carries Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader medical space are Stryker Corporation SYK, Cencora, Inc. COR and Cardinal Health CAH.
Stryker, carrying a Zacks Rank #2 (Buy), reported a fourth-quarter 2023 adjusted EPS of $3.46, beating the Zacks Consensus Estimate by 5.8%. Revenues of $5.8 billion outpaced the consensus estimate by 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stryker has an estimated earnings growth rate of 11.5% for 2025 compared with the S&P 500’s 9.9%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 5.1%.
Cencora, carrying a Zacks Rank #2, reported a first-quarter fiscal 2024 adjusted EPS of $3.28, which beat the Zacks Consensus Estimate by 14.7%. Revenues of $72.3 billion outpaced the Zacks Consensus Estimate by 5.1%.
COR has an earnings yield of 5.75% compared with the industry’s 1.85%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 6.7%.
Cardinal Health, carrying a Zacks Rank #2, reported second-quarter fiscal 2024 adjusted earnings of $1.82, which beat the Zacks Consensus Estimate by 16.7%. Revenues of $57.45 billion improved 11.6% on a year-over-year basis and also topped the Zacks Consensus Estimate by 1.1%.
CAH has a long-term estimated earnings growth rate of 15.3% compared with the industry’s 11.8% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.6%.
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