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Charles River Laboratories International Inc. (CRL - Snapshot Report) reported third quarter 2012 earnings (excluding special items) of 65 cents per share, beating the Zacks Consensus Estimate of 62 cents. Earnings were 14% above the year-ago earnings of 57 cents. Earnings were boosted by improvement in the Preclinical Services segment and stock repurchases.

The company’s quarterly net sales of $278.7 million decreased 0.4% year over year. Net sales edged past the Zacks Consensus Estimate of $278 million. Foreign currency movements negatively impacted sales by 3.2% in the third quarter of 2012.

Quarter in Detail

Charles River operates through two segments - Research Models & Services (RMS) and Preclinical Services (PCS).

Revenue from the RMS segment was $166.5 million in the third quarter, down 2.9% from the prior-year period. Excluding the 4.1% loss from currency translations, RMS segment revenue inched up 1.2% year over year.

Revenue from the PCS segment was $112.2 million in the third quarter, up 5.7% from the prior-year period. Excluding the 1.8% loss from currency translations, sales were up 7.5% mainly due to an increase in demand for regulated safety assessment as well as for non- good laboratory practice (GLP) discovery services.

During the third quarter of 2012, Charles River repurchased shares worth $15.0 million (approximately 416,000 shares) and has $73.5 million remaining under its $750 million repurchase program.

Outlook for 2012

Charles River narrowed its 2012 adjusted earnings guidance to $2.68–$2.73 per share (previous guidance: $2.63–$2.73 per share). The Zacks Consensus Estimate of $2.72 per share is towards the upper end of the company’s guidance range.

Charles River trimmed its 2012 net sales guidance. Though the company continues to expect foreign exchange translations to negatively impact sales by 2%, the year-over-year change in net sales is now expected at -1% (previous guidance: -1%–1%). Charles River also trimmed its net sales growth outlook on a constant currency basis at 1% (previous guidance: 1% – 3%).

The company expects RMS segment sales in the fourth quarter to improve sequentially due to the positive impact from the Accugenix acquisition.

Our Recommendation

We currently have a Neutral recommendation on Charles River. The stock carries a Zacks #2 Rank, which translates into a short-term Buy rating.

We are impressed by Charles River’s three-year collaboration agreement with AstraZeneca plc (AZN - Analyst Report), to work on the latter’s outsourced regulated safety assessment and development drug metabolism and pharmacokinetics (DMKP). The agreement, inked in October 2012, is expected to end in 2015. AstraZeneca started transferring projects to Charles River Labs earlier this year, a process that will be completed by early 2013. The incremental sales under the agreement may rise up to 1% of Charles River’s net sales. The association with an established pharma player like AstraZeneca is a big positive for Charles River.

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