Charles River Beats on Earnings, Guidance Upped - Analyst Blog

Charles River Laboratories CRL reported first quarter 2014 earnings (excluding special items) of 82 cents per share, easily beating the Zacks Consensus Estimate of 74 cents and up from 69 cents in the year-ago quarter.

Charles River's net sales increased 2.8% year over year to $299.4 million in the reported quarter, but short of the Zacks Consensus Estimate of $302 million. Foreign currency movements positively impacted sales by 0.4% in the first quarter of 2014.

Quarter in Detail

Charles River operates through two segments -- Research Models & Services (RMS) and Preclinical Services PCS.

Sales from the RMS segment were $185.6 million in the first quarter of 2014, up 1.7% from the year-ago quarter. Foreign currency movement positively sales by 0.2% in the reported quarter. The increase in RMS segment sales was driven by growth in the legacy Endotoxin and Microbial Detection EMD business.

Sales from the PCS segment were $113.8 million in the first quarter, up 4.6% year over year. The improvement in revenues was driven by higher sales to mid-tier clients mainly due to market share gains and improved client demand. Foreign currency movement positively impacted sales by 0.7% in the reported quarter.

During the first quarter of 2014, Charles River repurchased 183,000 shares worth $9.8 million, subsequent to which the company has $129.3 million remaining under its $1.0 billion repurchase program.

2014 Guidance Upped

Charles River upped its earnings guidance for 2014 to reflect the acquisition of Argenta and BioFocus. The company expects adjusted earnings per share between $3.15 and $3.25, up from the earlier estimate of $3.00–$3.10. The Zacks Consensus Estimate of $3.14 per share is well within the company's increased guidance range.

We remind investors that in Mar 2014, Charles River entered into a definitive agreement to acquire the contract research organization (CRO) services division of Galapagos NV.

The CRO division of Galapagos NV includes the businesses of Argenta and BioFocus. Located in the U.K and the Netherlands, both these businesses specialize in integrated drug discovery services from target discovery through the delivery of clinic-ready candidates to a broad range of pharmaceutical and biotechnology companies.

Charles River now expects sales growth of 9.0%–11.0% in 2014, up from the previous projected range of 3.0%–5.0%.

Our Take

We are encouraged by the positive first quarter results. Demand increased from key customers after a slow first quarter. The increase in guidance was encouraging as well. Management indicated positive trends for the second quarter as demand from its mid-tier biotechnology clients continued to increase due to improved access to funding along with the company's targeted sales strategies. Hence, we expect a strong performance from the company in 2014.

Currently, Charles River carries a Zacks Rank #2 (Buy). Other stocks that look attractive include MedAssets, Inc. MDAS, Covance Inc. CVD and ICON Public Limited Co. ICLR look attractive. All three carry a Zacks Rank #2.