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Why Is Charles River (CRL) Down 10.7% Since Last Earnings Report?
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It has been about a month since the last earnings report for Charles River Laboratories (CRL - Free Report) . Shares have lost about 10.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Charles River due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Charles River Q2 Earnings Beat Estimates, Reduces View
Charles River Laboratories reported adjusted earnings per share of $2.77 for second-quarter 2022, reflecting a 6.1% improvement from the year-ago earnings. The metric surpassed the Zacks Consensus Estimate by 1.1%. In the quarter, higher revenue and operating margin improvement were partially offset by higher interest expense and tax rate.
On a GAAP basis, earnings surged 23.8% year over year to $2.13.
Revenues
Revenues in the second quarter totaled $973.1 million, missing the Zacks Consensus Estimate by 2.5%. However, the top line improved 6.4% from the year-ago number (up 9.5% organically, excluding the impact of acquisition, divestiture and foreign currency translation).
Segment in Detail
Charles River’s second-quarter total Research Models and Services (RMS) revenues of $186.4 million were up 5.5% year over year (up 8.5% organically). Organic revenue growth was driven by growth in research model services, particularly Insourcing Solutions (IS) and Genetically Engineered Models and Services (GEMS) business.
Discovery and Safety Assessment (DSA) revenues of $591.9 million rose 9.6% (up 12.9% organically). Organic revenue growth was mainly driven by strong contributions from Safety Assessment businessesand Discovery Services businesses.
Manufacturing Solutions revenues totaled $194.8 million, down 1.5% year over year (up 1% organically). Organic revenue growth was fueled by higher revenues in the Biologics Testing and Microbial Solutions businesses, effectively offset by a revenue decline in the CDMO business.
Margins
The gross profit in the reported quarter was $356.7 million, up 4.3% from the prior-year quarter. The gross margin of 36.7% contracted 74 basis points (bps) year over year.
Meanwhile, selling, general & administrative expenses declined 23.2% to $131.7 million.
Adjusted operating income totaled $225 million, reflecting a 31.9% rise from the prior-year quarter. The adjusted operating margin in the second quarter expanded 448 bps to 23.1%.
Liquidity and Cash Position
Charles River exited the second quarter of 2022 with cash and cash equivalents of $200.3 million compared with $241.9 million at the end of Q1.
Cumulative net cash provided by operating activities at the end of the second quarter was $252.1 million compared with the prior-year quarter’s $356.8 million.
2022 Guidance Update
The company has reduced its 2022 guidance.
For 2022, revenues are now expected to grow in the band of 9-11% on a reported basis (a significant slash from the earlier guidance of 13.5-15.5%). Organic revenue growth is now expected in the range of 10-12% (12.5%-14.5% previously). The Zacks Consensus Estimate for total revenues is pegged at $4.02 billion, indicating a 13.5% rise from 2021.
Adjusted earnings per share for 2022 is expected in the range of $10.70-$10.95 ($11.50-$11.75 expected previously). The current Zacks Consensus Estimate is pegged at $11.50.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -11.24% due to these changes.
VGM Scores
At this time, Charles River has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
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Why Is Charles River (CRL) Down 10.7% Since Last Earnings Report?
It has been about a month since the last earnings report for Charles River Laboratories (CRL - Free Report) . Shares have lost about 10.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Charles River due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Charles River Q2 Earnings Beat Estimates, Reduces View
Charles River Laboratories reported adjusted earnings per share of $2.77 for second-quarter 2022, reflecting a 6.1% improvement from the year-ago earnings. The metric surpassed the Zacks Consensus Estimate by 1.1%.
In the quarter, higher revenue and operating margin improvement were partially offset by higher interest expense and tax rate.
On a GAAP basis, earnings surged 23.8% year over year to $2.13.
Revenues
Revenues in the second quarter totaled $973.1 million, missing the Zacks Consensus Estimate by 2.5%. However, the top line improved 6.4% from the year-ago number (up 9.5% organically, excluding the impact of acquisition, divestiture and foreign currency translation).
Segment in Detail
Charles River’s second-quarter total Research Models and Services (RMS) revenues of $186.4 million were up 5.5% year over year (up 8.5% organically). Organic revenue growth was driven by growth in research model services, particularly Insourcing Solutions (IS) and Genetically Engineered Models and Services (GEMS) business.
Discovery and Safety Assessment (DSA) revenues of $591.9 million rose 9.6% (up 12.9% organically). Organic revenue growth was mainly driven by strong contributions from Safety Assessment businessesand Discovery Services businesses.
Manufacturing Solutions revenues totaled $194.8 million, down 1.5% year over year (up 1% organically). Organic revenue growth was fueled by higher revenues in the Biologics Testing and Microbial Solutions businesses, effectively offset by a revenue decline in the CDMO business.
Margins
The gross profit in the reported quarter was $356.7 million, up 4.3% from the prior-year quarter. The gross margin of 36.7% contracted 74 basis points (bps) year over year.
Meanwhile, selling, general & administrative expenses declined 23.2% to $131.7 million.
Adjusted operating income totaled $225 million, reflecting a 31.9% rise from the prior-year quarter. The adjusted operating margin in the second quarter expanded 448 bps to 23.1%.
Liquidity and Cash Position
Charles River exited the second quarter of 2022 with cash and cash equivalents of $200.3 million compared with $241.9 million at the end of Q1.
Cumulative net cash provided by operating activities at the end of the second quarter was $252.1 million compared with the prior-year quarter’s $356.8 million.
2022 Guidance Update
The company has reduced its 2022 guidance.
For 2022, revenues are now expected to grow in the band of 9-11% on a reported basis (a significant slash from the earlier guidance of 13.5-15.5%). Organic revenue growth is now expected in the range of 10-12% (12.5%-14.5% previously). The Zacks Consensus Estimate for total revenues is pegged at $4.02 billion, indicating a 13.5% rise from 2021.
Adjusted earnings per share for 2022 is expected in the range of $10.70-$10.95 ($11.50-$11.75 expected previously). The current Zacks Consensus Estimate is pegged at $11.50.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -11.24% due to these changes.
VGM Scores
At this time, Charles River has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.