Charles River (CRL) Q1 Earnings Top, Gross Margin Falls

Charles River Laboratories International, Inc. CRL reported adjusted earnings per share (EPS) of $2.75 for first-quarter 2022, reflecting an 8.7% improvement from the year-ago earnings. The metric surpassed the Zacks Consensus Estimate by 1.5%.

On a GAAP basis, earnings surged 50.8% year over year to $2.75.

Revenues

Revenues in the first quarter totaled $913.9 million, beating the Zacks Consensus Estimate by 0.6%. Moreover, the top line improved 10.8% from the year-ago number (up 9.4% organically, excluding the impact of acquisition, divestiture and foreign currency translation).

Segment in Detail

Charles River’s first-quarter total Research Models and Services (RMS) revenues of $176.5 million were unchanged year over year (up 8.7% organically). Organic revenue growth was driven by broad-based growth for research models, particularly in North America, and research model services, particularly in the Insourcing Solutions (IS) business.

Charles River Laboratories International, Inc. Price, Consensus and EPS Surprise

Charles River Laboratories International, Inc. Price, Consensus and EPS Surprise

Charles River Laboratories International, Inc. price-consensus-eps-surprise-chart | Charles River Laboratories International, Inc. Quote

Discovery and Safety Assessment (DSA) revenues of $544.3 million rose 8.6% (up 9.5% organically). Organic revenue growth was mainly driven by strong contributions from Safety Assessment businesses.

Manufacturing Solutions revenues totaled $193.1 million, up 31.8% year over year (up 10.1% organically). Organic revenue growth was fueled by strong demand for Biologics Testing Solutions and Microbial Solutions.

Margins

The gross profit in the reported quarter was $913.9 million, up 10.8% from the prior-year quarter. The gross margin of 36.9% contracted 53 basis points (bps).

Meanwhile, selling, general & administrative expenses dropped 3.7% to $150 million.

Adjusted operating income totaled $186.8 million, reflecting a 22.4% rise from the prior-year quarter. The adjusted operating margin in the first quarter expanded 194 bps to 20.4%.

Liquidity and Cash Position

Charles River exited the first quarter of 2022 with cash and cash equivalents of $241.9 million compared with $241.2 million at the end of 2021.

Cumulative net cash provided by operating activities at the end of the first quarter was $102.6 million compared with the prior-year quarter’s $170.2 million.

2022 Guidance Update

The company updated its 2022 guidance.

For 2022, revenues are expected to grow in the band of 13.5-15.5% on a reported basis (earlier guidance was 13-15%). Organic revenue growth is restated in the range of 12.5-14.5%. The Zacks Consensus Estimate for total revenues is pegged at $4.03 billion, indicating a 13.7% rise from 2021.

Adjusted EPS for 2022 is reaffirmed in the range of $11.50-$11.75. The current Zacks Consensus Estimate is pegged at 11.63.

Our Take

Charles River exited the first quarter of 2022 with better-than-expected earnings and revenues. The results highlighted 9.8% organic revenue growth, driven by strength across all three segments. Operating margin expansion and meaningful cash flow generation are other upsides. The 2022 financial projections with strong growth expectations too buoy investors’ optimism.

On the flip side, the divestiture of RMS Japan, and a 1.2% impact of foreign currency translation resulted in a slow down in RMS reported revenues. Gross margin contraction was another downside of the quarter.

Zacks Rank and Key Picks

Charles River currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are UnitedHealth Group Incorporated UNH, Medpace Holdings, Inc. MEDP and Alkermes plc ALKS.

UnitedHealth, having a Zacks Rank #2, reported first-quarter 2022 adjusted EPS of $5.49, which beat the Zacks Consensus Estimate by 1.7%. Revenues of $80.1 billion outpaced the consensus mark by 14.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UnitedHealth has an estimated long-term growth rate of 14.8%. UNH’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%.

Medpace reported first-quarter 2022 adjusted EPS of $1.69, which surpassed the Zacks Consensus Estimate by 34.1%. Revenues of $330.9 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2.

Medpace has a historical growth rate of 27.3%. MEDP’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%.

Alkermes reported first-quarter 2022 adjusted EPS of 12 cents, which surpassed the Zacks Consensus Estimate of a penny. Revenues of $278.6 million outpaced the Zacks Consensus Estimate by 6.2%. It currently sports a Zacks Rank #1.

Alkermes has an estimated long-term growth rate of 25.1%. ALKS’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%.

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