Analyst Sees Charles River As Preclinical Leader But Maintains Neutral Stance

On Wednesday, Charles River Laboratories International Inc CRL reported fourth-quarter 2024 revenue of $1 billion, a decrease of 1.1% year over year, beating the consensus of $983.63 million.

In the fourth quarter of 2024, the operating margin decreased to (16.7)% from 13.1% a year ago, including a non-cash goodwill impairment of $215.0 million in the fourth quarter of 2024 related to the Biologics Solutions reporting unit, which includes the Biologics Testing and CDMO businesses.

Adjusted operating margin increased to 19.9% from 19.1%, due primarily to higher revenue and operating income in the Manufacturing segment and lower unallocated corporate costs.

The company reported adjusted EPS of $2.66, down from $2.46 a year ago, surpassing the consensus estimate of $2.53.

James C. Foster, Chair, President and Chief Executive Officer, said, "Throughout 2024, we have launched initiatives to generate more revenue, aggressively reduce costs, and further strengthen our business. As we move into 2025, we see many of our global biopharmaceutical clients continuing to move forward with their restructuring and pipeline reprioritization activities, which are expected to constrain early-stage spending by many of these clients again in 2025.”

“We believe these trends are stabilizing, and therefore, our view of the global biopharmaceutical demand environment remains unchanged. In addition, small and mid-sized biotechnology clients continued to benefit from a more favorable funding environment in 2024, and we expect biotechnology demand trends will be stable to slightly improved this year."

Revenue for the Discovery and Safety Assessment segment was $603.3 million, down 3.6%. Organic revenue decreased by 3.5%, driven primarily by lower sales volume, as well as slightly lower pricing.

Research Models and Services sales increased 4.3% to $204.3 million.

The Noveprim acquisition in November 2023 contributed 4.8% to fourth-quarter RMS reported revenue, and the impact of foreign currency translation reduced revenue by 0.1%. Organic revenue decreased by 0.4%, due primarily to lower revenue for research models services and the Cell Solutions business, as well as lower sales for non-human primates in China.

Guidance: Charles River Laboratories expects 2025 revenue to decline between 7% and 4.5% on a reported basis and 5.5% and 3.5% organically.

Charles River sees the fiscal year 2025 adjusted EPS of $9.10-$9.60 versus a consensus of $9.60.

William Blair analyst Max Smock writes that the initial release reinforced the view that Charles River remains the premier preclinical CRO, and the analyst is confident in its best-in-class offerings.

“There is too much working against the company in the near term to make the stock interesting,” analyst writes. William Blair reiterates the Market Perform rating.

Price Action: At last check on Wednesday, CRL stock closed up 6.87% to $165.01.

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