Why Is Charles River (CRL) Up 6.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Charles River Laboratories (CRL). Shares have added about 6.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Charles River Q4 Earnings Beat, Margins Down

Charles Riverreported fourth-quarter 2023 adjusted earnings per share of $2.46, which reflected a 17.4% decrease year over year. However, the metric surpassed the Zacks Consensus Estimate by 2.9%.

On a GAAP basis, earnings declined 0.8% year over year to $3.62 per share. The year-over-year decrease in GAAP earnings was primarily due to lower revenues and operating income.

For the full year, adjusted earnings per share was $10.67 per share, down 4% from the year-ago period’s levels. The figure topped the Zacks Consensus Estimate by 0.9%.

Revenues

Revenues in the fourth quarter totaled $1.01 billion, beating the Zacks Consensus Estimate by 2.8%. However, the top line fell 7.9% from the year-ago quarter (down 3.5% organically, excluding the impact of acquisition, divestiture and foreign currency translation).

Total revenues for 2023 were $4.13 billion, up 3.9% from the year-ago period’s levels. The figure exceeded the Zacks Consensus Estimate by 0.7%.

Segments in Detail

The company reports through three segments: Research Models and Services (“RMS”), Discovery and Safety Assessment (“DSA”) and Manufacturing Solutions.

In the fourth quarter of 2023, RMS revenues of $195.8 million were down 0.2% year over year (down 0.4% organically). The organic revenue decrease was primarily due to lower small research model sales, particularly in North America and Europe, and lower revenues in the Cell Solutions business, partially offset by higher revenues for NHPs in China. Our model estimated RMS business revenues to be $184.9 million in the fourth quarter.

DSA revenues of $625.8 million fell 9.5% year over year (down 6% organically). The organic revenue decline was mainly due to a meaningful revenue drop in the Discovery Services business and lower Safety Assessment revenues, which were impacted by a difficult, prior-year growth comparison. Our model’s projected revenues for this segment were $627.9 million.

Manufacturing Solutions revenues totaled $191.9 million, down 9.5% year over year (up 2.3% organically). Organic revenue growth reflected higher revenues in the CDMO business, which was largely offset by lower revenues in the Biologics Testing Solutions and Microbial Solutions businesses. For the fourth quarter, our model projected revenues to be $181.6 million.

Margins

The gross profit in the reported quarter was $364.1 million, down 8.7% from the prior-year quarter. The gross margin of 35.9% contracted 34 basis points (bps) year over year despite a 7.4% fall in the total costs of the company.

Selling, general & administrative expenses fell 1.3% to $197.1 million. Adjusted operating income totaled $166.9 million, reflecting a 16.2% decline from the prior-year quarter. The adjusted operating margin in the fourth quarter contracted 164 bps to 16.5%.

Liquidity and Cash Position

Charles River exited the fourth quarter of 2023 with cash and cash equivalents of $276.8 million compared with $233.9 million at the end of 2022.

Cumulative net cash provided by operating activities at the end of the fourth quarter was $683.9 million compared with $619.6 million at the end of 2022.

2024 Guidance

Charles River initiated its outlook for 2024.

Total revenue growth is expected in the band of 1 on a reported basis. Organic revenue growth is expected to be between flat and 3% range. The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $4.25 billion.

Adjusted earnings per share for 2024 is expected in the range of $10.90-$11.40. The Zacks Consensus Estimate for the metric is pegged at $10.94.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -15.63% due to these changes.

VGM Scores

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

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

Outlook

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

Performance of an Industry Player

Charles River belongs to the Zacks Medical Services industry. Another stock from the same industry, Cencora (COR), has gained 2% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.

Cencora reported revenues of $72.25 billion in the last reported quarter, representing a year-over-year change of +15%. EPS of $3.28 for the same period compares with $2.71 a year ago.

For the current quarter, Cencora is expected to post earnings of $3.65 per share, indicating a change of +4.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.4% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Cencora. Also, the stock has a VGM Score of A.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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