A month has gone by since the last earnings report for Charles River Laboratories (CRL). Shares have lost about 8.9% 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's Q3 Earnings and Revenues Beat Estimates
Charles River Laboratories International, Inc. reported third-quarter 2024 adjusted earnings per share of $2.59, which declined 4.8% year over year. The figure, however, surpassed the Zacks Consensus Estimate by 6.6%.
On a GAAP basis, earnings declined 21.3% year over year to $1.33 per share.
Revenues
Revenues totaled $1.01 billion, beating the Zacks Consensus Estimate by 3.4%. However, the top line declined 1.6% from the year-ago quarter’s level (down 2.7% organically, excluding the impact of acquisition, divestiture and foreign currency translation).
Segments in Detail
The company reports through three segments — Research Models and Services (“RMS”), Discovery and Safety Assessment (“DSA”) and Manufacturing Solutions.
RMS’ revenues of $197.8 million were up 5.9% year over year (up 0.6% organically). The organic rise in revenues was primarily driven by higher sales of small research models in all geographic regions on higher pricing. This was largely offset by a revenue decline for research model services, particularly in the Insourcing Solutions business. Our model estimated RMS business revenues to be $189.2 million in the third quarter.
DSA’s revenues of $615.1 million fell 7.4% year over year (down 7.4% organically as well). The organic decline in revenues can be attributed to lower sales volume in both the Discovery Services and Safety Assessment businesses. Our model projected revenues of $597.6 million for this segment.
Manufacturing Solutions’ revenues totaled $196.9 million, up 12% year over year (up 11.8% organically). Organic revenue growth reflected higher revenues across all segments. For the third quarter, our model projected revenues to be $189 million.
Margins
The gross profit in the reported quarter was $349 million, down 3.5% from the prior-year quarter’s level. The gross margin of 34.6% contracted 68 basis points (bps) year over year despite a 0.6% fall in the total cost of the company.
Selling, general & administrative expenses rose 13.1% year over year to $199.2 million. Adjusted operating income totaled $149.8 million, reflecting a 19.3% decline from the prior-year quarter’s level. The adjusted operating margin contracted 326 bps to 14.8%.
Liquidity and Cash Position
Charles River exited the third quarter with cash and cash equivalents of $210.2 million, compared with $179.2 million at the end of the second quarter.
Cumulative net cash provided by operating activities at the end of the third quarter was $575.2 million compared with $462.9 million at the end of third-quarter 2023.
2024 Guidance
Charles River has tightened its revenue guidance and raised its adjusted earnings per share guidance for the year.
CRL now expects total revenues to decline in the range of 2.0%-3.0% (earlier guidance for revenue decline was in the band of 2.5%-4.5%) on a reported basis. The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $3.99 billion, implying a reported decline of 3.4%. Organically, revenues are expected to decline in the range of 3-4% (compared with the earlier guidance of 3-5%).
Adjusted earnings per share for 2024 is now expected to be in the range of $10.10-$10.30 (up from the previously projected range of $9.90-$10.20). The Zacks Consensus Estimate for the metric is pegged at $10.01.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
Currently, Charles River has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Charles River has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Charles River belongs to the Zacks Medical Services industry. Another stock from the same industry, Teladoc (TDOC), has gained 13.5% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Teladoc reported revenues of $640.51 million in the last reported quarter, representing a year-over-year change of -3%. EPS of -$0.19 for the same period compares with -$0.35 a year ago.
For the current quarter, Teladoc is expected to post a loss of $0.20 per share, indicating a change of -17.7% from the year-ago quarter. The Zacks Consensus Estimate has changed -8.9% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Teladoc. Also, the stock has a VGM Score of A.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
