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Charles River Laboratories International Inc. (CRL)
Q4 2009 Earnings Call
February 9, 2010 8:30 am ET
Susan Hardy - Corporate VP, IR
Jim Foster - Chairman, President & CEO
Tom Ackerman - EVP & CFO
Greg Bolan - Wells Fargo
Dave Windley - Jefferies & Company
Ross Muken - Deutsche Bank
Sandy Draper - Raymond James
Doug Schenkel - Cohen and Company
Isaac Ro - Leerink Swann
Douglas Tsao - Barclays Capital
Natalie Nadler - William Blair
Tycho Peterson - JPMorgan
Robert Jones - Goldman Sachs
Previous Statements by CRL
» Charles River Laboratories International Inc., Q3 2009 Earnings Call Transcript
» Charles River Laboratories International, Inc., Q4 2088 Earnings Call Transcript
» Charles River Laboratories International Inc. Q3 2008 Earnings Call Transcript
I would now like to turn the conference over to our host, Ms. Susan Hardy, Corporate Vice President of Investor Relations. Please go ahead.
Thank you. Good morning and welcome to Charles River Laboratories' 2009 earnings and 2010 guidance conference call and webcast. This morning, Jim Foster, Chairman, President and Chief Executive Officer and Tom Ackerman, Executive Vice President and Chief Financial Officer will comment on our fourth quarter and full year results and review guidance for 2010. Following the presentation, we will respond to questions.
There is a slide presentation associated with today's remarks which is posted on the Investor Relations section of our website at ir.criver.com. A taped replay of this call will be available beginning at noon today and can be accessed by calling 800-475-6701. The international access number is 320-365-3844. The access code in either case is 143476. The replay will be available through February 23rd; you may also access an archived version of the webcast on our Investor Relations website.
I’d like to remind you of our Safe Harbor. Any remarks that we may make about future expectations, plans and prospects for the company constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by any forward-looking statements as a result of various important factors including, but not limited to those discussed in our Annual Report on Form 10-K, which was filed on February 23rd, 2009, as well as other filings we make with the Securities and Exchange Commission.
During this call, we will be primarily discussing non-GAAP financial measures. We believe that these non-GAAP financial measures help investors to gain a meaningful understanding of our core operating results and future prospects consistent with the manner in which management measures and forecasts the company's performance. The non-GAAP financial measures are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP.
In accordance with Regulation G, you can find the comparable GAAP measures and reconciliations to those GAAP measures on the Investor Relations section of our website through the financial reconciliations link.
Now, I will turn the call over to Jim Foster.
Good morning. I’d like to begin by reviewing the ’09 results and will then discuss our outlook for 2010 with you. We reported of $295.4 million for the fourth quarter of ’09, a decrease of 5.2% over the fourth quarter of ’08, including a 3.8% positive impact from foreign exchange.
Research Models and Services or RMS reported a strong quarter increasing 10.9% to $169.4 million. Preclinical Services or PCS reported net sales of $125.9 million, which was down 20.6% from the fourth quarter of ’08 that came in slightly higher than anticipated. This better than expected performance improves our level of confidence that market has stabilized and based on strong preclinical bookings for the first quarter of 2010 and early positive indication for the second, we believe we are starting to see our clients reinvigorate their late discovery and early development efforts.
Operating income for the quarter was $48.9 million and the operating margin was 16.5% compared to 19% reported in the fourth quarter of ‘08. The operating margin decrease was primarily the result of lower sales mitigated in part by stringent control of operating costs.
Earnings per diluted share were $0.49 in the fourth quarter compared to $0.59 in the fourth quarter of’08. Fourth quarter of ’09 tapped a challenging year in which a confluence of events, including the economy significant consolidations from the Pharma and biotech space lack of availability of funding for biotech companies and uncertainty surrounding healthcare reform drove our clients to reduce their spending on our products and services and for toxicology in particular. This reduction led to excess capacity throughout the CRO industry, which in turn resulted in pricing pressure.
Recognizing that these issues would take some time to resolve and that the biopharmaceutical industry would be fundamentally changed as it emerged from this space we decide to use this spear to strengthen our infrastructure and keep our financial base strong.
Towards that end we implemented a number of cost savings and efficiency initiatives and made strategic acquisitions that we’re intended to enhance our operations and our ability to support clients more effectively. In terms of efficiency, we closed or disposed a smaller less efficient site, including PCS Arkansas and our Phase 1 facility in Scotland, as well as two RMS sites in Hungary and Belgium.
We reduced headcount by approximately a 1000 people primarily in the PCS segment, including our recent decision to suspend operations at our PCS Massachusetts site. We expect this leaner infrastructure to improve our operating margins without compromising our ability to accommodate future demand for preclinical services.