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Charles River (CRL) Q3 Earnings Beat Estimates, EPS View Up

Charles River (CRL) exited the third quarter of 2021 with better-than-expected earnings on strength in the RMS, DSA and Manufacturing Solutions arms driving the top line.

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This story originally appeared on Zacks

Charles River Laboratories International, Inc. CRL announced adjusted earnings per share (EPS) of $2.70 for third-quarter 2021, reflecting a 15.9% jump from the year-ago earnings of $2.33. The metric surpassed the Zacks Consensus Estimate by 5.1%.

- Zacks

On a GAAP basis, earnings declined 0.9% year over year to $2.01.

Revenues

Revenues in the third quarter totaled $895.9 million, missing the Zacks Consensus Estimate by 1.4%. Moreover, the top line improved 20.5% from the year-ago number (up 13.6% organically, excluding the impact of acquisition and foreign currency translation).

Compared to the severe pandemic-hit third quarter of last year, Charles River’s third-quarter 2021 revenue growth was 1.8% (up 1.7% organically).

Segment in Detail

Charles River’s third-quarter total Research Models and Services (RMS) revenues of $171.3 million reflects an increase of 12.7% year over year (up 10.7% organically). Organic revenue growth was driven by the robust demand for research models, particularly in China, as well as higher revenues from research model services, particularly the Genetically Engineered Models and Services (GEMS) business. The pandemic-led favorable year-over-year comparison contributed 2.2% on a reported basis and 2.1% on an organic basis to RMS’ revenue growth in the third quarter.

Discovery and Safety Assessment (DSA) revenues of $531.8 million rose 15.3% (up 13% organically). Organic revenue growth was mainly driven by the robust demand from global biopharmaceutical and biotechnology clients in both Discovery Services and Safety Assessment businesses.

Manufacturing Solutions revenues totaled $192.9 million, up 48.1% year over year (up 19.1% organically). Organic revenue growth was fueled by strong demand in the Biologics Testing Solutions and Microbial Solutions businesses.

Margins

The gross profit in the reported quarter was $337.2 million, up 16.6% from the prior-year quarter. The gross margin of 37.6% contracted 128 basis points (bps).

Meanwhile, the selling, general & administrative expenses flared up 15.8% to $148.6 million.

The adjusted operating income totaled $188.7 million, reflecting a 17.2% jump from the prior-year quarter. Further, the adjusted operating margin in the third quarter contracted 60 bps to 21.1%.

Liquidity and Cash Position

Charles River exited the third quarter of 2021 with cash and cash equivalents of $212.5 million compared with $222.9 million at the end of second-quarter 2021.

Cumulative net cash provided by operating activities at the end of the third quarter was $531.5 million compared with the prior year’s $408.2 million.

Guidance Updated

The company updated its 2021 guidance, taking into account the impact of foreign exchange and the divestitures.

For 2021, Charles River lowered its revenue guidance. Revenues are now expected to grow in the band of 19.5-20.5% compared with the earlier guidance of 20.5-22.5%. Organic revenue growth is now expected in the range of 13.5-14.5% versus the 13-15% projected earlier. The Zacks Consensus Estimate for total revenues is pegged at $3.56 billion, indicating a 21.8% rise from 2020.

The adjusted EPS for 2021 are expected in the range of $10.20-$10.30, suggesting a rise from the earlier range of $10.10-10.35. The current Zacks Consensus Estimate is pegged at $10.26.

Our Take

The company exited the third quarter of 2021 with better-than-expected earnings. Results highlight 13.6% organic revenue growth, driven by strength across all three segments. Robust demand in the Biologics Testing Solutions and Microbial Solutions businesses drove Manufacturing Solutions in the reported quarter. The acquisitions of Cognate BioServices (Cognate) and Vigene Biosciences (Vigene) too contributed to growth in the Manufacturing Solutions arm. Strong customer uptake in the Discovery Services and Safety Assessment businesses instills optimism as well. Increased adjusted earnings guidance for the full year is an upside too.

On the flip side, a lowered full-year revenue guidance raises concern. Rising operating costs and contraction in both margins does not bode well either. Stiff competition and foreign-currency fluctuation are other woes.

Zacks Rank and Key Picks

Charles River currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Thermo Fisher Scientific Inc. TMO, SARTORIUS SARTF and West Pharmaceutical Services, Inc. WST.

Thermo Fisher, flaunting a Zacks Rank #1 (Strong Buy), reported third-quarter 2021 adjusted EPS of $5.76, which beat the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the consensus mark by 12%. You can see the complete list of today’s Zacks #1 Rank stocks here.

SARTORIUS reported third-quarter 2021 adjusted EPS of $2.55, surpassing the Zacks Consensus Estimate by 7.6%. Revenues of $1.06 billion surpassed the Zacks Consensus Estimate by 5.2%. It currently carries a Zacks Rank #2 (Buy).

West Pharmaceutical delivered third-quarter 2021 adjusted EPS of $2.06, which surpassed the Zacks Consensus Estimate by 13.2%. Revenues of $706.5 million outpaced the Zacks Consensus Estimate by 3.2%. It currently carries a Zacks Rank #2.



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