Charles River Laboratories Stock Sinks As It Warns Of Continued Biotech Demand Slump, Lowers Forecast

Charles River Laboratories International Inc CRL reported second-quarter 2024 revenue of $1.03 billion on Wednesday, a decrease of 3.2% year over year, beating the consensus of $1.024 billion.

Foreign currency translation reduced reported revenue by 0.3%, a divestiture decreased it by 0.2%, and an acquisition added 0.5% to the consolidated second-quarter revenue.

Organic revenue decreased by 3.2%. 

Adjusted operating margin increased to 21.3% from 20.4%, driven primarily by lower performance-based compensation accruals and operating margin improvement in the Manufacturing segment.

The company reported adjusted EPS of $2.80, up from $2.69 a year ago, surpassing the consensus estimate of $2.39.

James C. Foster, chair, president, and CEO, said, "Forward-looking Discovery and Safety Assessment (DSA) trends suggest that demand will not improve during the second half of the year as we had previously anticipated, and in fact, will decline for global biopharmaceutical clients. This has caused us to take a much more negative view of our growth prospects for the second half of the year."

Revenue for the DSA segment was $627.4 million, down 5.4%. Organic revenue decreased by 5.0%, driven by lower revenue in the Discovery Services and Safety Assessment businesses.

The company has also approved a new stock repurchase authorization of $1.0 billion.

Charles River is also implementing restructuring initiatives that aim to achieve annualized cost savings of over $150 million, of which approximately $100 million will be realized in 2024.

Guidance: Charles River Laboratories expects 2024 revenue to decline 4.5%–2.5% on a reported basis and 5.0%–3.0% organically, compared to prior growth guidance of 1.0%–4.0% and 0.0–3.0%, respectively.

The company expects 2024 adjusted EPS of $9.90–$10.20, compared to prior guidance of $10.90–$11.40 and the consensus of $10.99.

The reduced guidance primarily reflects the lack of a recovery in demand from small and mid-sized biotechnology clients in the second half of the year and softer demand trends from global biopharmaceutical clients, whose deterioration has become increasingly evident in the past few months.

Price Action: CRL stock is down 12.6% at $199.91 at last check Wednesday.

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Image created using artificial intelligence via Midjourney.