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Why Is Charles River (CRL) Up 9.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Charles River Laboratories (CRL). Shares have added about 9.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Charles River due for a pullback? 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 catalysts.

Charles River Q2 Earnings Beat Estimates, 2021 View Up

Charles River announced adjusted earnings per share of $2.61 for second-quarter 2021, reflecting a 65.2% surge from year-ago earnings of $1.58. The metric surpassed the Zacks Consensus Estimate by 9.2%.

On a GAAP basis, earnings improved 28.4% year over year to $1.72.

Revenues

Revenues in the second quarter totaled $914.6 million, beating the Zacks Consensus Estimate by 5.2%. Moreover, the top line improved 33.9% from the year-ago number (up 24.1% organically, excluding the impact of acquisition and foreign currency translation).

Compared to the severe pandemic-hit second quarter of last year, Charles River’s second-quarter 2021 reported revenue growth was 8.6% (up 8% organically).

Segment in Detail

Charles River’s second-quarter total Research Models and Services revenues of $176.7 million reflected an increase of 51.6% year over year (up 44.5% organically). Organic revenue growth was driven by robust demand for research models across all client segments and geographic regions, particularly in China, as well as higher revenue from research model services. COVID-led favorable year-over-year comparison contributed approximately 35% on a reported basis and 33.4% on an organic basis to RMS revenue growth in the second quarter.

Discovery and Safety Assessment revenues of $540.1 million rose 22% (up 18.1% organically). Organic revenue growth was primarily driven by robust demand from global biopharmaceutical and biotechnology clients in both the Discovery Services and Safety Assessment businesses.

Manufacturing Solutions revenues totaled $197.8 million, up 60.2% year over year (up 26.6%). Organic revenues improved on strong demand in the Biologics Testing Solutions and Microbial Solutions businesses.

Margins

Gross profit in the reported quarter was $342 million, up 47.3% from the prior-year quarter. Gross margin of 37.4% expanded 337 basis points (bps).

Meanwhile, selling, general & administrative expenses rose 34.3% to $171.5 million.

Adjusted operating income totaled $170.5 million, reflecting a 63.1% surge from the prior-year quarter. Further, adjusted operating margin in the second quarter expanded 333 bps to 18.6%.

Guidance Raised

For 2021, Charles River raised its revenue and adjusted earnings guidance. Revenues are now expected to grow in the band of 20.5-22.5% compared with the earlier guidance of 19-21% Organic revenue growth is now expected in the range of 13-15% versus 12-14% earlier. The Zacks Consensus Estimate for total revenues is pegged at $3.51 billion, indicating a 20.1% rise from 2020.

Adjusted earnings per share for 2021 are expected in the range of $10.10-10.35, suggesting a rise from the earlier range of $9.75-$10.00. The current Zacks Consensus Estimate is pegged at $9.99.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Charles River has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Charles River has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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