On November 6, 2024 Charles River Laboratories International, Inc. (NYSE: CRL) reported its results for the third quarter of 2024. For the quarter, revenue was $1.01 billion, a decrease of 1.6% from $1.03 billion in the third quarter of 2023 (Press release, Charles River Laboratories, NOV 6, 2024, View Source [SID1234647807]).
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The impact of foreign currency translation benefited reported revenue by 0.4%, and an acquisition contributed 0.9% to consolidated third-quarter revenue. A divestiture of a small Safety Assessment site reduced reported revenue by 0.2%. Excluding the effect of these items, revenue declined 2.7% on an organic basis. On a segment basis, organic revenue growth in the Manufacturing Solutions (Manufacturing) and Research Models and Services (RMS) segments were more than offset by lower revenue in the Discovery and Safety Assessment (DSA) segment.
In the third quarter of 2024, the GAAP operating margin decreased to 11.6% from 14.8% in the third quarter of 2023. This GAAP decrease was primarily driven by costs associated with the Company’s restructuring initiatives. On a non-GAAP basis, the operating margin improved in all three segments; however, the improvements were more than offset by higher unallocated corporate costs, which resulted in the third-quarter operating margin decreasing to 19.9% from 20.5%.
On a GAAP basis, third-quarter net income attributable to common shareholders was $68.7 million, a decrease of 21.4% from $87.4 million for the same period in 2023. Third-quarter diluted earnings per share on a GAAP basis were $1.33, a decrease of 21.3% from $1.69 for the third quarter of 2023. The GAAP net income and earnings per share decreases were driven primarily by lower revenue and operating income, which included higher costs associated with the Company’s restructuring initiatives. On a non-GAAP basis, net income was $133.7 million for the third quarter of 2024, a decrease of 4.8% from $140.5 million for the same period in 2023. Third-quarter diluted earnings per share on a non-GAAP basis were $2.59, a decrease of 4.8% from $2.72 per share for the third quarter of 2023. The decreases in non-GAAP net income and earnings per share were driven primarily by lower revenue and operating income.
James C. Foster, Chair, President and Chief Executive Officer, said, "Forward-looking demand indicators were relatively stable in the third quarter, contributing to third-quarter financial performance which exceeded our prior outlook. We are continuing to navigate through a challenging period as global biopharmaceutical clients reduce spending in conjunction with major restructuring and pipeline reprioritization activities, but overall demand trends do not appear to have deteriorated further. In addition, biotech funding has improved in 2024, and demand appears to be demonstrating early signs of stabilization. These factors resulted in a slight, sequential improvement in net book-to-bill and the cancellation rate in the Safety Assessment business."
"We remain laser focused during this period on our strategy, which includes aggressively managing our cost structure, enhancing our clients’ experiences to gain additional share, and protecting shareholder value. We will continue to distinguish ourselves through our exceptional science and preclinical focus, in order to extend our leading position as our clients’ preferred, global, non-clinical drug development partner. We expect to emerge from this period as a stronger, leaner, and more profitable company, and an even more responsive partner for our clients," Mr. Foster concluded.
Third-Quarter Segment Results
Research Models and Services (RMS)
Revenue for the RMS segment was $197.8 million in the third quarter of 2024, an increase of 5.9% from $186.8 million in the third quarter of 2023. The Noveprim acquisition in November 2023 contributed 4.9% to third-quarter RMS reported revenue, and the impact of foreign currency translation increased revenue by 0.4%. Organic revenue increased by 0.6%, due primarily to higher sales of small research models in all geographic regions, principally driven by higher pricing. This was largely offset by a revenue decline for research model services, particularly in the Insourcing Solutions business.
In the third quarter of 2024, the RMS segment’s GAAP operating margin decreased to 13.9% from 15.2% in the third quarter of 2023. The GAAP operating margin decline was driven primarily by higher amortization expense related to the Noveprim acquisition coupled with higher costs associated with the Company’s restructuring initiatives, including severance and site consolidation costs. On a non-GAAP basis, the operating margin increased to 21.0% from 18.9%. The non-GAAP operating margin increase was primarily driven by higher pricing for small research models, a favorable revenue mix related to the Noveprim acquisition, and the benefit of cost savings associated with the Company’s restructuring initiatives.
Discovery and Safety Assessment (DSA)
Revenue for the DSA segment was $615.1 million in the third quarter of 2024, a decrease of 7.4% from $664.0 million in the third quarter of 2023. The divestiture of a small Safety Assessment site reduced reported revenue by 0.3% and the impact of foreign currency translation increased DSA revenue by 0.3%. Organic revenue decreased by 7.4%, driven primarily by lower sales volume in both the Discovery Services and Safety Assessment businesses.
In the third quarter of 2024, the DSA segment’s GAAP operating margin decreased to 20.6% from 22.1% in the third quarter of 2023 primarily driven by lower revenue and higher severance costs related to restructuring initiatives. On a non-GAAP basis, the operating margin increased to 27.4% from 27.2% in the third quarter of 2023. The non-GAAP operating margin increase was primarily driven by the benefit of cost savings associated with restructuring initiatives.
Manufacturing Solutions (Manufacturing)
Revenue for the Manufacturing segment was $196.9 million in the third quarter of 2024, an increase of 12.0% from $175.7 million in the third quarter of 2023. The impact of foreign currency translation increased Manufacturing revenue by 0.2%. Organic revenue growth of 11.8% reflected higher revenue across each of the segment’s businesses.
In the third quarter of 2024, the Manufacturing segment’s GAAP operating margin increased to 20.4% from 15.0% in the third quarter of 2023, and on a non-GAAP basis, the operating margin increased to 28.7%, from 24.5% in the third quarter of 2023. The GAAP and non-GAAP operating margin increases were driven primarily by improved operating leverage from higher revenue in each of segment’s businesses, as well as the benefit of cost savings associated with restructuring initiatives.
Stock Repurchase Update
On August 2, 2024, the Company’s Board of Directors approved a new stock repurchase authorization of $1.0 billion. Following the new authorization, the Company repurchased 500,000 shares during the third quarter of 2024 for a total of $100.7 million. As of September 28, 2024, the Company has $899.3 million remaining on its $1.0 billion stock repurchase authorization.
Updates 2024 Guidance
The Company is updating its financial guidance for 2024, which was previously revised on August 7, 2024. Revenue and non-GAAP earnings per share guidance have been narrowed and slightly raised from the midpoint of the previous ranges to principally reflect the third-quarter financial performance, which exceeded the Company’s prior outlook. In addition, GAAP earnings per share guidance has been reduced due primarily to increased charges related to the Company’s additional restructuring actions.