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Charles River (CRL) Q2 Earnings Top, 2023 View Narrowed
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Charles River Laboratories International, Inc. (CRL - Free Report) reported adjusted earnings per share (EPS) of $2.69 for second-quarter 2023, reflecting a 2.9% decline from the year-ago earnings. The metric however surpassed the Zacks Consensus Estimate by 2.3%.
On a GAAP basis, earnings declined 11.3% year over year to $1.89 per share.
The year-over-year decline was primarily due to non-operating items, including increased interest expense and a higher tax rate as well as the impact of the Avian Vaccine divestiture.
Revenues
Revenues in the second quarter totaled $1.06 billion, beating the Zacks Consensus Estimate by 1%. The top line improved 8.9% from the year-ago number (up 11.2% organically, excluding the impact of acquisition, divestiture and foreign currency translation).
Charles River Laboratories International, Inc. Price, Consensus and EPS Surprise
Charles River’s second-quarter total Research Models and Services (RMS) revenues of $209.9 million were up 12.6% year over year (up 13.9% organically). Organic revenue growth was driven by broad-based growth of research models in all geographies, particularly in China, as well as research model services, primarily the Insourcing Solutions business. Our model estimated the RMS business to grow 9.2% on a reported basis (10% growth organically) in the second quarter.
Discovery and Safety Assessment (DSA) revenues of $663.5 million rose 12.1% (up 11.7% organically). Organic revenue growth was mainly driven by growth in the Safety Assessment business on meaningful price increases and higher study volume. Going by our model, the DSA business was expected to register 6.3% growth in the second quarter (10% growth organically).
Manufacturing Solutions revenues totaled $186.5 million, down 4.2% year over year (up 6.6% organically). The organic revenue growth was primarily driven by the contract development and manufacturing organization and Microbial Solutions businesses.
Margins
The gross profit in the reported quarter was $398.9 million, up 11.8% from the prior-year quarter. Gross margin of 37.6% expanded 98 basis points (bps) year over year despite a 7.2% rise in the total costs of the company.
Selling, general & administrative expenses soared 51.7% to $199.8 million.
Adjusted operating income totaled $199.2 million, reflecting an 11.5% decline from the prior-year quarter. The adjusted operating margin in the second quarter contracted 433 bps to 18.8%.
Liquidity and Cash Position
Charles River exited the second quarter with cash and cash equivalents of $200.4 million compared with $201.6 million at the end of the first quarter.
Cumulative net cash provided by operating activities at the end of the second quarter was $257.5 million compared with the prior-year period’s $252.1 million.
2023 Guidance
The company has narrowed its 2023 guidance.
For 2023, revenue growth is now expected in the band of 2.5-4.5% (from the earlier band of 2-4.5%) on a reported basis. Organic revenue growth is expected in the range of 5.5-7.5% (5-7.5%). The Zacks Consensus Estimate for total revenues is pegged at $4.11 billion, indicating a 3.4% rise from 2022.
Adjusted EPS for 2023 is now expected in the range of $10.30-$10.90 ($9.90-$10.90). The current Zacks Consensus Estimate is pegged at $10.33.
Our Take
Charles River exited the second quarter of 2022 with better-than-expected earnings and revenues. The results highlighted nearly 14% organic revenue growth, driven by strength across the DSA and RMS business segments. The company registered robust growth in small research models, research model services and the Safety Assessment business.
On the flip side, the contraction of operating margins on escalating expenses is concerning. Headwinds associated with foreign exchange due to the strengthening of the U.S. dollar and interest expense due to a rising interest rate environment increase concerns.
Zacks Rank and Key Picks
Charles River currently carries Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories (ABT - Free Report) , Elevance Health, Inc. (ELV - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) .
Abbott, carrying a Zacks Rank #2 (Buy), reported second-quarter 2023 adjusted EPS of $1.08, beating the Zacks Consensus Estimate by 3.8%. Revenues of $9.98 billion outpaced the consensus mark by 2.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 12.4%.
Elevance Health reported second-quarter 2023 adjusted EPS of $9.04, beating the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently carries a Zacks Rank #2.
Elevance Health has a long-term estimated growth rate of 12.1%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 2.8%.
Intuitive Surgical reported second-quarter 2023 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
Intuitive Surgical has a long-term estimated growth rate of 14.5%. ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 4.2%.
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Charles River (CRL) Q2 Earnings Top, 2023 View Narrowed
Charles River Laboratories International, Inc. (CRL - Free Report) reported adjusted earnings per share (EPS) of $2.69 for second-quarter 2023, reflecting a 2.9% decline from the year-ago earnings. The metric however surpassed the Zacks Consensus Estimate by 2.3%.
On a GAAP basis, earnings declined 11.3% year over year to $1.89 per share.
The year-over-year decline was primarily due to non-operating items, including increased interest expense and a higher tax rate as well as the impact of the Avian Vaccine divestiture.
Revenues
Revenues in the second quarter totaled $1.06 billion, beating the Zacks Consensus Estimate by 1%. The top line improved 8.9% from the year-ago number (up 11.2% organically, excluding the impact of acquisition, divestiture and foreign currency translation).
Charles River Laboratories International, Inc. Price, Consensus and EPS Surprise
Charles River Laboratories International, Inc. price-consensus-eps-surprise-chart | Charles River Laboratories International, Inc. Quote
Segment in Detail
Charles River’s second-quarter total Research Models and Services (RMS) revenues of $209.9 million were up 12.6% year over year (up 13.9% organically). Organic revenue growth was driven by broad-based growth of research models in all geographies, particularly in China, as well as research model services, primarily the Insourcing Solutions business. Our model estimated the RMS business to grow 9.2% on a reported basis (10% growth organically) in the second quarter.
Discovery and Safety Assessment (DSA) revenues of $663.5 million rose 12.1% (up 11.7% organically). Organic revenue growth was mainly driven by growth in the Safety Assessment business on meaningful price increases and higher study volume. Going by our model, the DSA business was expected to register 6.3% growth in the second quarter (10% growth organically).
Manufacturing Solutions revenues totaled $186.5 million, down 4.2% year over year (up 6.6% organically). The organic revenue growth was primarily driven by the contract development and manufacturing organization and Microbial Solutions businesses.
Margins
The gross profit in the reported quarter was $398.9 million, up 11.8% from the prior-year quarter. Gross margin of 37.6% expanded 98 basis points (bps) year over year despite a 7.2% rise in the total costs of the company.
Selling, general & administrative expenses soared 51.7% to $199.8 million.
Adjusted operating income totaled $199.2 million, reflecting an 11.5% decline from the prior-year quarter. The adjusted operating margin in the second quarter contracted 433 bps to 18.8%.
Liquidity and Cash Position
Charles River exited the second quarter with cash and cash equivalents of $200.4 million compared with $201.6 million at the end of the first quarter.
Cumulative net cash provided by operating activities at the end of the second quarter was $257.5 million compared with the prior-year period’s $252.1 million.
2023 Guidance
The company has narrowed its 2023 guidance.
For 2023, revenue growth is now expected in the band of 2.5-4.5% (from the earlier band of 2-4.5%) on a reported basis. Organic revenue growth is expected in the range of 5.5-7.5% (5-7.5%). The Zacks Consensus Estimate for total revenues is pegged at $4.11 billion, indicating a 3.4% rise from 2022.
Adjusted EPS for 2023 is now expected in the range of $10.30-$10.90 ($9.90-$10.90). The current Zacks Consensus Estimate is pegged at $10.33.
Our Take
Charles River exited the second quarter of 2022 with better-than-expected earnings and revenues. The results highlighted nearly 14% organic revenue growth, driven by strength across the DSA and RMS business segments. The company registered robust growth in small research models, research model services and the Safety Assessment business.
On the flip side, the contraction of operating margins on escalating expenses is concerning. Headwinds associated with foreign exchange due to the strengthening of the U.S. dollar and interest expense due to a rising interest rate environment increase concerns.
Zacks Rank and Key Picks
Charles River currently carries Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories (ABT - Free Report) , Elevance Health, Inc. (ELV - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) .
Abbott, carrying a Zacks Rank #2 (Buy), reported second-quarter 2023 adjusted EPS of $1.08, beating the Zacks Consensus Estimate by 3.8%. Revenues of $9.98 billion outpaced the consensus mark by 2.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 12.4%.
Elevance Health reported second-quarter 2023 adjusted EPS of $9.04, beating the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently carries a Zacks Rank #2.
Elevance Health has a long-term estimated growth rate of 12.1%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 2.8%.
Intuitive Surgical reported second-quarter 2023 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
Intuitive Surgical has a long-term estimated growth rate of 14.5%. ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 4.2%.