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Charles River's (CRL) Improved Volume Aids Amid Margin Woe
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Charles River’s (CRL - Free Report) strong organic revenue growth and robust demand from biotech as well as pharmaceutical clients demonstrate the power of the company’s advanced portfolio. Yet, the global business environment continues to be challenging. The stock carries a Zacks Rank #3 (Hold).
Over the past year, Charles River has been outperforming its industry. The stock has declined 1.9% compared with the industry’s 16% plunge.
Charles River exited the first quarter of 2023 with better-than-expected earnings and revenues. Revenues improved 12.6% year over year with 15.4% organic revenue growth This was driven by robust Discovery and Safety Assessment (DSA) performance as well as solid Research Model Services (RMS) growth.
In the first quarter, RMS revenues increased 6.8% organically year over year. Organic revenue growth was driven by broad-based demand for small research models in all geographic regions. RMS and the Cell Solutions business also witnessed solid demand. However, in China, the RMS growth rate was below the high single-digit target for the year. The company expects the RMS growth rate to meaningfully improve in the second quarter as the nonhuman primates (NHPs) have been shipped to China.
Charles River Laboratories International, Inc. Price
The DSA segment recorded 23.6% organic revenue growth in the first quarter of 2023. Organic revenue growth was mainly driven by broad-based growth in the Safety Assessment business on favorable base pricing with NHP pass-throughs and higher study volume. The Discovery Business Services growth rate also improved in the quarter.
By client segment, global biopharmaceutical companies, small and mid-sized biotechs and academic and government accounts made significant contributions to the growth rate. The company registered robust growth in small research models, research model services and the Cell Solutions business. Based on the strong first-quarter performance, Charles River narrowed its organic revenue growth and adjusted earnings per share guidance.
On the flip side, in the first quarter of 2023, although Discovery Services revenues increased, the growth rate continued to moderate, which is reflective of the current market environment coupled with the short-term nature of both discovery projects and the businesses backlog. DSA backlog decreased modestly on a sequential basis to $3 billion at the end of the first quarter from $3.15 billion at 2022 end. This trend is reflective of the normalization of booking and proposal activity that the company experienced at the end of last year and in the first quarter.
Clients are not booking work as far out as they did over the past few years as a result of their evaluation of pipeline priorities and scheduling with a near-term focus. In RMS, the growth rate was below the high single-digit target for the year due to RMS China. While demand for small models remained strong, the timing of clients in China impacted the first-quarter growth rate. Since exports from China were shut down at the beginning of the pandemic, Charles River had been selling a relatively small number of NHPs locally to clients.
The company is currently entangled in an investigation related specifically to shipments of NHP received from its Cambodian supplier.
Meanwhile, the contraction of both margins and escalating costs are concerns. Headwinds associated with foreign exchange due to the strengthening of the U.S. dollar and interest expense due to a rising interest rate environment persist.
Penumbra’s stock has risen 175.8% in the past year. The Zacks Consensus Estimate for Penumbra’s earnings per share (EPS) has remained constant at $1.56 for 2023 and $2.56 for 2024 in the past 30 days.
PEN’s earnings beat estimates in each of the trailing four quarters, the average surprise being 109.42%. In the last reported quarter, the company registered an earnings surprise of 109.09%.
The Zacks Consensus Estimate for Lantheus’ 2023 EPS has remained constant at $5.60 in the past 30 days. Shares of the company have improved 34.2% in the past year against the industry’s 22.7% decline.
LNTH’s earnings beat estimates in each of the trailing four quarters, the average surprise being 25.77%. In the last reported quarter, the company recorded an earnings surprise of 13.95%.
Estimates for Haemonetics’ EPS have increased from $3.29 to $3.55 for 2023 in the past 30 days. Shares of the company have increased 40.5% in the past year against the industry’s 22.7% decline.
HAE’s earnings beat estimates in each of the trailing four quarters, the average surprise being 12.21%. In the last reported quarter, Haemonetics delivered an earnings surprise of 13.24%.
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Charles River's (CRL) Improved Volume Aids Amid Margin Woe
Charles River’s (CRL - Free Report) strong organic revenue growth and robust demand from biotech as well as pharmaceutical clients demonstrate the power of the company’s advanced portfolio. Yet, the global business environment continues to be challenging. The stock carries a Zacks Rank #3 (Hold).
Over the past year, Charles River has been outperforming its industry. The stock has declined 1.9% compared with the industry’s 16% plunge.
Charles River exited the first quarter of 2023 with better-than-expected earnings and revenues. Revenues improved 12.6% year over year with 15.4% organic revenue growth This was driven by robust Discovery and Safety Assessment (DSA) performance as well as solid Research Model Services (RMS) growth.
In the first quarter, RMS revenues increased 6.8% organically year over year. Organic revenue growth was driven by broad-based demand for small research models in all geographic regions. RMS and the Cell Solutions business also witnessed solid demand. However, in China, the RMS growth rate was below the high single-digit target for the year. The company expects the RMS growth rate to meaningfully improve in the second quarter as the nonhuman primates (NHPs) have been shipped to China.
Charles River Laboratories International, Inc. Price
Charles River Laboratories International, Inc. price | Charles River Laboratories International, Inc. Quote
The DSA segment recorded 23.6% organic revenue growth in the first quarter of 2023. Organic revenue growth was mainly driven by broad-based growth in the Safety Assessment business on favorable base pricing with NHP pass-throughs and higher study volume. The Discovery Business Services growth rate also improved in the quarter.
By client segment, global biopharmaceutical companies, small and mid-sized biotechs and academic and government accounts made significant contributions to the growth rate. The company registered robust growth in small research models, research model services and the Cell Solutions business. Based on the strong first-quarter performance, Charles River narrowed its organic revenue growth and adjusted earnings per share guidance.
On the flip side, in the first quarter of 2023, although Discovery Services revenues increased, the growth rate continued to moderate, which is reflective of the current market environment coupled with the short-term nature of both discovery projects and the businesses backlog. DSA backlog decreased modestly on a sequential basis to $3 billion at the end of the first quarter from $3.15 billion at 2022 end. This trend is reflective of the normalization of booking and proposal activity that the company experienced at the end of last year and in the first quarter.
Clients are not booking work as far out as they did over the past few years as a result of their evaluation of pipeline priorities and scheduling with a near-term focus. In RMS, the growth rate was below the high single-digit target for the year due to RMS China. While demand for small models remained strong, the timing of clients in China impacted the first-quarter growth rate. Since exports from China were shut down at the beginning of the pandemic, Charles River had been selling a relatively small number of NHPs locally to clients.
The company is currently entangled in an investigation related specifically to shipments of NHP received from its Cambodian supplier.
Meanwhile, the contraction of both margins and escalating costs are concerns. Headwinds associated with foreign exchange due to the strengthening of the U.S. dollar and interest expense due to a rising interest rate environment persist.
Key Picks
Some better-ranked stocks in the overall healthcare sector are Penumbra (PEN - Free Report) , Lantheus (LNTH - Free Report) and Haemonetics (HAE - Free Report) . While Penumbra and Lantheus each sport a Zacks Rank #1 (Strong Buy), Haemonetics carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Penumbra’s stock has risen 175.8% in the past year. The Zacks Consensus Estimate for Penumbra’s earnings per share (EPS) has remained constant at $1.56 for 2023 and $2.56 for 2024 in the past 30 days.
PEN’s earnings beat estimates in each of the trailing four quarters, the average surprise being 109.42%. In the last reported quarter, the company registered an earnings surprise of 109.09%.
The Zacks Consensus Estimate for Lantheus’ 2023 EPS has remained constant at $5.60 in the past 30 days. Shares of the company have improved 34.2% in the past year against the industry’s 22.7% decline.
LNTH’s earnings beat estimates in each of the trailing four quarters, the average surprise being 25.77%. In the last reported quarter, the company recorded an earnings surprise of 13.95%.
Estimates for Haemonetics’ EPS have increased from $3.29 to $3.55 for 2023 in the past 30 days. Shares of the company have increased 40.5% in the past year against the industry’s 22.7% decline.
HAE’s earnings beat estimates in each of the trailing four quarters, the average surprise being 12.21%. In the last reported quarter, Haemonetics delivered an earnings surprise of 13.24%.