Charles River (CRL) Down 3.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Charles River Laboratories (CRL). Shares have lost about 3.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Charles River Q3 Earnings Beat Estimates, EPS View Up

Charles River Laboratories International, Inc. announced adjusted earnings per share of $2.70 for third-quarter 2021, reflecting a 15.9% jump from the year-ago earnings of $2.33. The metric surpassed the Zacks Consensus Estimate by 5.1%.

On a GAAP basis, earnings declined 0.9% year over year to $2.01.

Revenues

Revenues in the third quarter totaled $895.9 million, missing the Zacks Consensus Estimate by 1.4%. Moreover, the top line improved 20.5% from the year-ago number (up 13.6% organically, excluding the impact of acquisition and foreign currency translation).

Compared to the severe pandemic-hit third quarter of last year, Charles River’s third-quarter 2021 revenue growth was 1.8% (up 1.7% organically).

Segment in Detail

Charles River’s third-quarter total Research Models and Services (RMS) revenues of $171.3 million reflects an increase of 12.7% year over year (up 10.7% organically). Organic revenue growth was driven by the robust demand for research models, particularly in China, as well as higher revenues from research model services, particularly the Genetically Engineered Models and Services (GEMS) business. The pandemic-led favorable year-over-year comparison contributed 2.2% on a reported basis and 2.1% on an organic basis to RMS’ revenue growth in the third quarter.

Discovery and Safety Assessment (DSA) revenues of $531.8 million rose 15.3% (up 13% organically). Organic revenue growth was mainly driven by the robust demand from global biopharmaceutical and biotechnology clients in both Discovery Services and Safety Assessment businesses.

Manufacturing Solutions revenues totaled $192.9 million, up 48.1% year over year (up 19.1% organically). Organic revenue growth was fueled by strong demand in the Biologics Testing Solutions and Microbial Solutions businesses.

Margins

The gross profit in the reported quarter was $337.2 million, up 16.6% from the prior-year quarter. The gross margin of 37.6% contracted 128 basis points (bps).

Meanwhile, the selling, general & administrative expenses flared up 15.8% to $148.6 million.

The adjusted operating income totaled $188.7 million, reflecting a 17.2% jump from the prior-year quarter. Further, the adjusted operating margin in the third quarter contracted 60 bps to 21.1%.

Liquidity and Cash Position

Charles River exited the third quarter of 2021 with cash and cash equivalents of $212.5 million compared with $222.9 million at the end of second-quarter 2021.

Cumulative net cash provided by operating activities at the end of the third quarter was $531.5 million compared with the prior year’s $408.2 million.

Guidance Updated

The company updated its 2021 guidance, taking into account the impact of foreign exchange and the divestitures.

For 2021, Charles River lowered its revenue guidance. Revenues are now expected to grow in the band of 19.5-20.5% compared with the earlier guidance of 20.5-22.5%. Organic revenue growth is now expected in the range of 13.5-14.5% versus the 13-15% projected earlier. The Zacks Consensus Estimate for total revenues is pegged at $3.56 billion, indicating a 21.8% rise from 2020.

The adjusted EPS for 2021 are expected in the range of $10.20-$10.30, suggesting a rise from the earlier range of $10.10-10.35. The current Zacks Consensus Estimate is pegged at $10.26.

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 -5.42% due to these changes.

VGM Scores

Currently, Charles River has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise Charles River has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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