Charles River Beat Expectations But Why Is The Stock Falling?

Core Viewpoint - Charles River Laboratories reported a decline in third-quarter 2025 earnings, leading to a decrease in stock price, while also announcing a strategic review to enhance profitability and efficiency [1][9]. Financial Performance - The company reported quarterly revenue of $1.01 billion, a 0.5% decrease year-over-year, surpassing the consensus estimate of $990.77 million [2]. - Foreign currency translation positively impacted reported revenue by 1.3%, while the divestiture of a small Safety Assessment site reduced revenue by 0.2%. Excluding these effects, organic revenue declined by 1.6% [2]. - Operating margin increased to 13.3% from 11.6%, mainly due to lower costs from restructuring initiatives, while adjusted operating margin slightly decreased to 19.7% from 19.9% [3]. - Adjusted earnings reached $2.43 per share, exceeding the consensus of $2.34 [3]. Segment Performance - Revenue for the Research Models and Services (RMS) segment was $213.5 million, up 7.9% year-over-year, with organic revenue increasing by 6.5% due to higher sales of large research model products [4]. - The Discovery and Safety Assessment (DSA) segment reported revenue of $600.7 million, down 2.3%, with organic revenue decreasing by 3.1% due to lower sales volume [4]. - Manufacturing segment sales were $190.7 million, down 3.1%, with organic revenue decreasing by 5.1%, primarily from lower revenue in CDMO and Biologics Testing businesses [5]. 2025 Outlook - The company expects 2025 revenue to decline between (1.5)% and (0.5)%, with organic revenue down by (2.5)%–(1.5)% [6]. - Sales guidance for 2025 was lowered from $3.95 billion-$4.03 billion to $3.85 billion-$3.99 billion, aligning with the consensus of $3.99 billion [6]. - Adjusted earnings guidance for 2025 was raised from $9.90-$10.30 per share to $10.10-$10.30, compared to the consensus of $10.19 [6]. Strategic Review Update - The company plans to divest certain underperforming assets, which represent approximately 7% of estimated 2025 revenue, to focus on more profitable growth opportunities [7]. - Proposed divestitures are expected to result in non-GAAP earnings per share accretion of at least $0.30 annually [7]. - The company has initiated several restructuring and efficiency measures aimed at protecting margins and reviving earnings in a challenging demand environment [7]. Cost Savings Initiatives - The company anticipates annualized cost savings of about $225 million by 2026 from its restructuring efforts [8]. - Additional measures focusing on process improvements and procurement synergies are projected to yield an extra $70 million in yearly savings, with full realization expected by 2026 [8]. Stock Repurchase Authorization - In October, the company's board approved a new $1 billion stock repurchase authorization [9].