Charles River Laboratories (NYSE:CRL) FY Conference September 09, 2025 10:00 AM ET Company ParticipantsJames Foster - Chairman, CEO & PresidentConference Call ParticipantsKallum Titchmarsh - VP & Equity AnalystKallum TitchmarshGreat, I think we can get started. Callum Tuchmarsh here from the Life Sciences team at Morgan Stanley. Really pleased today to be joined by Jim Foster, Chair, President, and CEO of Charles River Laboratories. Just before I get started, for important disclosures, please see the Morgan ...

Core Insights - Charles River Laboratories International, Inc. (CRL) is positioned for growth due to favorable prospects in its Discovery and Safety Assessment (DSA) segment, supported by strategic acquisitions and collaborations [1][4][9] - The company has experienced a 15.4% decline in stock value over the past year, compared to a 16.6% drop in the industry, while the S&P 500 has risen by 17.4% [2] - CRL has a market capitalization of $7.94 billion and an earnings yield of 6.3%, outperforming the industry's 3.9% yield [2] Growth Drivers - The DSA segment is a key growth driver, with increasing demand for outsourced drug discovery and safety testing services from large pharmaceutical companies and emerging biotechs [4][9] - Recent acquisitions, including Noveprim and SAMDI Tech, have enhanced CRL's capabilities in non-human primate supply and high-throughput screening solutions [5] - Strategic collaborations, such as those with CHDI Foundation and Deciphex, are aimed at advancing treatments and developing AI tools for toxicologic pathology [6][10] Financial Health - As of the second quarter of 2025, CRL reported cash and cash equivalents of $182.8 million, with no short-term debt, indicating a strong solvency position [11] - Long-term debt decreased by 7.1% to $2.33 billion, with a debt-to-capital ratio of 44% [11] Challenges - The company faces a cautious spending environment among biopharmaceutical clients, which may impact service demand and utilization capacity [12] - Foreign exchange fluctuations pose a significant risk, as a considerable portion of CRL's revenue is generated outside the U.S., and the strengthening U.S. dollar has intensified these challenges [13]

Core Insights - Charles River Laboratories International, Inc. (CRL) has joined the EASYGEN Consortium, a European Union-backed initiative aimed at accelerating the production of CAR-T cell therapies, making them more affordable and accessible across Europe [1][9] - The consortium aims to develop a fully automated platform for manufacturing personalized cell therapies within 24 hours [2] - The global CAR T-cell therapy market was valued at $4.65 billion in 2024 and is projected to grow at a compound annual growth rate of 22.2% through 2030, driven by increasing cancer cases and product launches [10] Company Developments - Following the announcement of joining the EASYGEN Consortium, CRL's shares dipped by 0.2%, closing at $163.31 [3] - CRL has a market capitalization of $8.04 billion and an earnings yield of 6.19%, outperforming the industry average of 4.04% [4] - The company has been focusing on oncology, where timely access to CAR-T therapies is critical for treating complex cancers [3][5] Technological Advancements - CRL will utilize its expertise in 3D screening technologies to develop an ex vivo platform for early screening of CAR-T cell therapies, enhancing safety and efficacy [6] - The new 3D screening platform will leverage CRL's patient-derived xenograft (PDX) bank and high-content imaging to identify effective CAR-T cell candidates quickly [6] Market Context - Less than 20% of eligible patients currently receive CAR-T cell therapy, highlighting the need for improved manufacturing processes to enhance patient access [5] - The lymphoma segment is expected to hold the largest market share in CAR T-cell therapy and be the fastest-growing segment in the coming years [10] Strategic Collaborations - In July, CRL announced a potential collaboration with BioTech Social Inc. to provide funding opportunities for early-stage cell and gene therapy developers, potentially allowing them to raise up to $5 million annually [11]

Investment Rating - The report assigns a "Buy" rating to Thermo Fisher, while other companies such as Danaher, Samsung Bio, and Lonza remain unrated [2]. Core Insights - The report highlights that the impact of tariffs on the life sciences upstream sector is less than expected, leading to an overall upward revision of performance guidance for 2025 by most companies [4][29]. - Clinical CRO orders have unexpectedly increased, driven by strong biotech client demand, although the sustainability of this trend remains uncertain [4][31]. - The revenue recovery is outpacing profit recovery, with cost control pressures increasing due to external macroeconomic challenges [6][14]. Summary by Sections Performance Analysis - In 1H25, the performance of overseas CXO and life sciences upstream companies remained under pressure, but a sequential improvement was observed in 2Q25, with 7 out of 10 tracked companies showing revenue growth compared to 1Q25 [6][31]. - The median and average revenue growth rates for 2Q25 were +4.3% and +7.1%, respectively, compared to +0.2% and +6.0% in 1Q25, primarily driven by clinical CRO companies [6][8]. Tariff Impact - The impact of tariffs on sales of instruments and equipment for drug development and production was reported to be less than anticipated, with management from major life sciences companies indicating a more favorable outlook [29][30]. - Companies like Thermo Fisher and Danaher have adjusted their performance guidance upwards, reflecting a more optimistic view on tariff impacts [29][30]. Demand Trends - The C(D)MO sector continues to see strong commercial production demand, while life sciences upstream companies benefit from a recovery in consumable demand as clients complete inventory destocking [31][32]. - Clinical CRO demand has been bolstered by unexpected growth from biotech clients, although the sustainability of this demand is still in question [33][34]. Financial Metrics - The average gross margin for heavy asset companies decreased from 50.2% in 2021 to 45.7% in 2024, but showed signs of recovery in 2Q25 [15]. - The report notes that capital expenditures are expected to reverse the declining trend observed in 2023-24, potentially increasing future depreciation pressures [17]. Market Reactions - Following the release of 2Q25 results, stock prices for most overseas CXO and life sciences companies reacted positively, particularly for clinical CROs, which saw significant price increases due to better-than-expected performance [24][25].

Have you looked into how Charles River Laboratories (CRL) performed internationally during the quarter ending June 2025? Considering the widespread global presence of this medical research equipment and services provider, examining the trends in international revenues is essential for assessing its financial resilience and prospects for growth. In the current era of a tightly interconnected global economy, the proficiency of a company to penetrate international markets significantly influences its financial ...

Last year, animal rights group PETA urged securities regulators to investigate Charles River Laboratories for allegedly misleading investors about its sales and purchases of long-tailed macaques, widely used in pharmaceutical research. The company faced accusations of importing thousands of non-human primates illegally and sourcing some from firms linked to an international smuggling ring, as well as falsely labeling monkeys sold to clients. Charles River Laboratories International Inc. CRL stock is trading ...

Core Insights - Shares of Charles River Laboratories (NYSE: CRL) have declined approximately 25% over the past year, missing out on a broader market recovery [1] - The company is experiencing challenges due to a tougher funding environment impacting its operations [1] Company Performance - The stock has faced significant pressure, indicating potential underlying issues that may affect future performance [1] - The decline in stock value suggests that investor sentiment may be shifting, warranting closer examination of the company's fundamentals [1] Market Environment - The current funding environment is described as more difficult, which could pose challenges for companies in the drug testing sector [1]

Key Takeaways Charles River Laboratories International, Inc. (CRL) reported second-quarter 2025 adjusted earnings per share (EPS) of $3.12, which rose 11.4% year over year. The figure surpassed the Zacks Consensus Estimate by 24.8%. On a GAAP basis, the company reported earnings of $1.06 per share compared with the year-ago quarter's level of $1.74. CRL's Q2 Revenues Revenues totaled $1.03 billion, which beat the Zacks Consensus Estimate by 5%. The top line rose 0.6% from the year-ago quarter's level (down ...

Financial Data and Key Metrics Changes - The company reported revenue of $1,030 million in Q2 2025, a 0.6% increase year over year, with nearly half of the revenue outperformance driven by foreign exchange [9][10] - Organic revenue declined by 0.5%, primarily due to a low single-digit decline in the DSA segment, partially offset by low single-digit increases in RMS and manufacturing segments [10][12] - The operating margin improved to 22.1%, an increase of 80 basis points year over year, reflecting cost savings from restructuring and better sales volume [10][11] Business Line Data and Key Metrics Changes - DSA segment revenue was $618 million, a 2.4% decrease year over year on an organic basis, driven by lower revenue for discovery services [13] - RMS revenue increased by 2.3% on an organic basis to $213.3 million, primarily driven by the timing of NHP shipments and higher revenue for research model services [21][22] - Manufacturing segment revenue was $200.8 million, a 2.9% increase on an organic basis, driven by growth in microbial solutions [25][26] Market Data and Key Metrics Changes - Revenue for small and mid-sized biotech clients improved slightly for the third consecutive quarter, while revenue for global biopharmaceutical clients remained below last year's level but improved sequentially [10][21] - The demand environment for global biopharmaceutical clients appears to be stabilizing, with proposal activity increasing both year over year and sequentially [15][50] - The academic and government client segments saw revenue increases despite potential NIH budget cuts, with only a minor impact observed [22] Company Strategy and Development Direction - The company is focused on expanding its NAMS portfolio and enhancing scientific capabilities to support biopharmaceutical companies in transitioning to alternative technologies [19][20] - A strategic review is underway to evaluate avenues for value creation, including portfolio and capital allocation strategies [28][29] - The company aims to generate over $175 million in cost savings this year, contributing to improved financial performance [11][44] Management's Comments on Operating Environment and Future Outlook - Management noted that the global biopharmaceutical demand trends appear to have bottomed and are beginning to slowly move upward [7] - The company raised its revenue and non-GAAP earnings per share guidance due to outperformance in Q2, reflecting a more favorable demand environment [12][33] - There is recognition of ongoing uncertainty in the healthcare landscape, but management remains optimistic about stabilization in demand [8][9] Other Important Information - The company experienced a slight decline in DSA backlog to $1.93 billion, with gross and net bookings improving at mid-single-digit rates year over year [14] - The non-GAAP tax rate increased to 22.7%, primarily due to stock-based compensation, but was more favorable than expected [40][41] - Free cash flow for Q2 was strong at $169.3 million, driven by higher earnings and improved working capital [42][43] Q&A Session Summary Question: Current demand environment and pharma's perspective - Management indicated that the demand situation is stabilizing for pharma, with some demand trends having bottomed [48] - Revenue and proposals are up, but cancellations have also increased, particularly for longer-term post-IND work [49][50] Question: Clarification on revenue guidance and book-to-bill ratio - Management stated that the current book-to-bill ratio is expected to remain in the range of 0.8 to 0.93, which does not require improvement to meet guidance [55] Question: CDMO performance and revenue impact - The CDMO revenue headwind is expected to be around $20 million due to the wind-down of a client relationship, with higher margins noted in the first half [62][63] Question: Backlog conversion and revenue support - Management believes the backlog is stable and robust, allowing for continued drawing from it to replace studies that slip or cancel [72][74] Question: Hiring confidence and future growth - Management expressed confidence in hiring to meet current demand, with improvements in the overall demand curve expected to support future growth [78][79] Question: Pricing stability and margin implications - Pricing in DSA remains stable, with mix favorability contributing positively to margins [82][84] Question: Cancellations in longer-term work - Cancellations are not expected to significantly impact margins, as the margin profile for different types of work is often comparable [86]

Financial Performance and Key Metrics - The company reported revenue of $1,030 million in Q2 2025, a 0.6% increase year over year, with nearly half of the revenue outperformance driven by foreign exchange [10][11] - Organic revenue declined by 0.5%, primarily due to a low single-digit decline in the DSA segment, partially offset by low single-digit increases in RMS and manufacturing segments [11][12] - Operating margin improved to 22.1%, an increase of 80 basis points year over year, reflecting cost savings from restructuring and better sales volume [11][12] - Earnings per share were $3.12, an increase of 11.4% from the previous year, driven by operating margin improvement [12] Business Segment Performance - DSA segment revenue was $618 million, a 2.4% decrease year over year on an organic basis, driven by lower revenue for discovery services [14] - RMS revenue increased by 2.3% on an organic basis to $213.3 million, primarily due to timing of NHP shipments and higher revenue from research model services [22][24] - Manufacturing segment revenue was $200.8 million, a 2.9% increase on an organic basis, driven by microbial solutions and commercial CDMO clients [25][27] Market Trends and Key Indicators - Demand trends in global biopharmaceuticals appear to have stabilized, with mid-sized biotechs performing better than smaller ones, which remain cash constrained [7][11] - DSA backlog was $1,930 million at the end of Q2, a slight decline from the previous quarter, with gross and net bookings improving at mid-single-digit rates year over year [14][15] - The net book to bill ratio dipped to 0.82 times in Q2, reflecting an increase in cancellations and DSA revenue outperformance [7][15] Company Strategy and Industry Competition - The company is focusing on expanding its NAMS portfolio, which generated approximately $200 million in annual DSA revenue, and aims to enhance its capabilities through partnerships and internal development [20][21] - The strategic review is ongoing, evaluating avenues for value creation while balancing the strength of the company's scientifically distinguished portfolio [29] Management Commentary on Operating Environment and Future Outlook - Management noted that the demand environment is stabilizing, with no significant impact from tariffs or drug pricing concerns observed to date [10][11] - The company raised its revenue and non-GAAP earnings per share guidance for 2025, reflecting outperformance in Q2 and favorable foreign exchange rates [12][34] - The outlook for the second half of the year includes expected revenue declines of 2% to 4% year over year, with a focus on maintaining operational efficiency [44][45] Other Important Information - Free cash flow for Q2 was $169.3 million, an increase from $154 million last year, driven by higher earnings and improved working capital [43] - The company expects total net interest expense to be lower than previously anticipated, benefiting from diligent capital planning [40] Q&A Session Summary Question: Current demand environment and pharma's perspective - Management indicated that the demand situation is stabilizing for pharma, with improvements in proposals and bookings, although cancellations have increased for longer-term work [50][51] Question: Clarification on revenue guidance and book to bill - Management clarified that the current book to bill ratio is expected to remain in the range of 0.8 to 0.93, supporting the guidance without needing to return above one [56][57] Question: CDMO performance and impact of NHP supply clearance - Management confirmed that the $20 million revenue from a client will not repeat in the second half, impacting overall CDMO performance, but the clearance of NHP shipments provides operational flexibility [62][63] Question: Dynamics of cancellations and margin implications - Management noted that cancellations are not expected to significantly impact margins, as the nature of work varies and is driven by client prioritization [91][92]