Charles River Laboratories Stock Surges On Upbeat Annual Outlook, But This Analyst Is Concerned

Charles River Laboratories International Inc CRL reported fourth-quarter 2023 revenue of $1.01 billion, a decrease of 7.9% Y/Y, beating the consensus of $991.25 million.

The impact of foreign currency translation benefited reported revenue by 1.2%, and acquisitions contributed 0.7% to consolidated fourth-quarter revenue. Organic revenue decreased 3.5%. 

Adjusted operating margin decreased to 19.1% from 20.4%.

Adjusted net income was $127.2 million for the fourth quarter of 2023, a decrease of 16.8% from a year ago. Adjusted EPS of $2.46 surpassed the consensus estimate of $2.40.

“Despite moderating demand trends in the broader life sciences sector, we were able to deliver solid revenue growth and non-GAAP earning per share that were in the upper half of our original guidance ranges,” said James Foster, Chairman, President and CEO.

“We believe the current market environment is transitory. We are anticipating that some level of constrained client spending will persist in 2024, but that demand will stabilize over the course of the year,” Foster added.

Guidance: Charles River forecasts a fiscal year 2024 adjusted EPS of $10.90 to $11.40, versus consensus of $10.87.

The company expects 2024 revenue growth of 1.0%–4.0% on a reported basis, with an organic growth of 0.0%–3.0%.

William Blair writes that the fourth quarter performance is perceived as a mixed outcome. The analyst keeps the Outperform rating on Charles River Laboratories.

Although there is positive news with a top-line beat, attention is expected to shift during the upcoming call to factors contributing to a somewhat disappointing revenue outlook for the year, which falls below the targeted 4% growth. 

Concerns are also raised about increased DSA cancellations observed in the fourth quarter. 

While the adjusted EPS guidance for 2024 appears favorable initially, it is noted that a significant portion of the expected increase comes from Charles River’s enhanced ownership stake in Noveprim. 

Price Action: CRL shares are up 9.01% at $240.09 on the last check Wednesday.

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