Charles River Laboratories International Q2 Earnings Call Highlights

Key Points

• Charles River reported a stronger-than-expected second quarter, with organic revenue up 0.1% year over year, non-GAAP EPS of $3.02, and DSA book-to-bill reaching 1.19—the highest in nearly four years.
• The company raised its 2026 guidance, now expecting flat-to-1% organic revenue growth, non-GAAP EPS of $11.15–$11.45, and free cash flow of $400–$420 million. Portfolio divestitures and lower NHP sourcing costs are expected to support significant second-half margin expansion.
• Recovery remains uneven across segments: DSA bookings and backlog improved substantially, while Manufacturing margins strengthened after divestitures; RMS revenue continued to decline because of weaker North American small-model and academic demand.

Charles River Laboratories International NYSE: CRL reported second-quarter results that exceeded its prior outlook, citing improved demand in its Discovery and Safety Assessment, or DSA, business and stronger-than-expected manufacturing performance. The company raised its full-year revenue, earnings and free-cash-flow guidance while maintaining a cautious view that the recovery in biopharmaceutical demand will progress gradually.

Chief Executive Officer Birgit Girshick said total company organic revenue increased 0.1% year over year, marking the first quarter of organic revenue growth since the third quarter of 2023. Non-GAAP earnings per share totaled $3.02, up 47% sequentially and above the company’s prior expectation for at least 30% sequential growth.

“We were encouraged that the biopharmaceutical demand environment continued to strengthen in the second quarter, particularly in the DSA segment,” Girshick said. DSA net book-to-bill reached nearly 1.2 times, its highest level in almost four years and the third straight quarter above 1.0 times.

DSA bookings and backlog improve

DSA organic revenue rose 0.2% in the second quarter, ending a stretch of declines that began after the third quarter of 2023. Reported DSA revenue was $607 million, down 1.9% because of the divestiture of certain European discovery sites.

Net DSA bookings increased 12.6% sequentially to $701 million, raising backlog to $1.97 billion. The segment’s net book-to-bill ratio was 1.19 times, supported by both global biopharmaceutical customers and small- and midsize-biotechnology clients.

Girshick said the company is beginning to see revenue benefits from bookings made late last year, while more recent booking strength is expected to support additional growth in the second half and into 2027. DSA demand was broad-based across study types and modalities, including increased activity in IND-enabling work and continued demand for non-human-primate, or NHP, studies tied to complex biologics.

The company said its ownership of NHP suppliers in Mauritius and Cambodia has strengthened its supply-chain control and competitive position. Girshick said the company can manage NHP availability, shipment timing and quality more directly, though some third-party supply contracts will continue to wind down over the next several years.

DSA operating margin was 25.6%, down 180 basis points year over year because of higher study-related direct costs but up 460 basis points sequentially. Chief Financial Officer Glenn Coleman said lower sourcing costs from the company’s Cambodian NHP supplier acquisition are expected to begin benefiting margins in the third quarter and have a more meaningful effect in the fourth quarter as more of those animals are placed on studies.

Portfolio changes lift margins

The company completed divestitures of certain European discovery services sites, its CDMO business and its Cell Solutions business during May. Girshick said the moves refined the company’s portfolio around regulated testing capabilities and contributed to a 420-basis-point sequential improvement in consolidated operating margin to 20.5%.

Manufacturing revenue was $188 million and rose 1.3% organically. Excluding CDMO, which remained part of the business for a portion of the quarter before its divestiture, the segment grew at a mid-single-digit organic rate. Microbial Solutions delivered high-single-digit organic growth, driven by demand across regions for endotoxin-testing reagents and rapid testing cartridges.

Manufacturing operating margin increased 500 basis points year over year to 37.8%, primarily reflecting the CDMO divestiture. Coleman said the segment’s margin could approach 40% in the second half as the company receives the full-period benefit from that transaction.

Research Models and Services, or RMS, revenue declined 1.4% organically to $209 million. The decline reflected lower North American small-model volumes and lower revenue from research model services, including genetically engineered models and services. Strong demand from mid-tier biotech and contract research organization clients in China partly offset those declines.

Girshick said academic and government demand in North America remained stable but was not growing, with flat National Institutes of Health budgets and slower grant processing affecting the market. The company maintained its expectation for a low- to mid-single-digit organic RMS revenue decline for the year.

Guidance raised for 2026

Charles River raised its 2026 organic revenue outlook to a range of flat to 1% growth, a 150-basis-point improvement from its prior outlook. Reported revenue is now expected to decline 2.5% to 3.5%, largely due to completed divestitures.

• DSA organic revenue is now expected to grow at a low-single-digit rate for the full year.
• Manufacturing organic revenue is expected to grow at a low- to mid-single-digit rate.
• RMS guidance was unchanged, with a low- to mid-single-digit organic decline anticipated.
• Non-GAAP EPS guidance was raised to $11.15 to $11.45, representing 8% to 11% year-over-year growth.
• Free cash flow guidance was raised to $400 million to $420 million from $375 million to $400 million.

The company maintained its expectation for 120 to 150 basis points of full-year operating-margin expansion. Coleman said management has “a clear line of sight” to at least 500 basis points of margin improvement in the second half compared with the first half, driven by portfolio actions, lower NHP sourcing costs, reduced corporate costs and efficiency initiatives.

For the third quarter, Charles River expects reported revenue to decline 4% to 6%, reflecting divestitures, while organic revenue is projected to rise 1% to 3%. It forecast third-quarter non-GAAP EPS of $2.90 to $3.00.

Technology and client partnerships

Girshick highlighted collaborations with Eli Lilly’s TuneLab drug-discovery platform and Arovella Therapeutics as examples of the company’s strategy to combine traditional testing with newer technologies. Through the Lilly collaboration, Charles River will provide non-clinical testing expertise to help optimize Lilly’s artificial-intelligence and machine-learning drug-discovery model.

The company is also expanding bioanalytical laboratory capacity in Scotland at Heriot-Watt University’s Research Park, part of five ongoing global lab-science expansions. Charles River is investing in AI-enabled digital pathology workflows, with a goal of reducing standard pathology timelines by at least one week for clients using its fully integrated solution.

Girshick said AI could become a long-term demand tailwind if more efficient molecule design and target identification lead to additional programs reaching validation and regulated safety-assessment stages. She said the timing of a material impact remains difficult to estimate but that AI-native drug discovery companies are already tending to run more programs than typical early-stage biotech clients.

About Charles River Laboratories International (NYSE:CRL)

Charles River Laboratories International, Inc is a leading provider of research models and preclinical and clinical support services for the pharmaceutical, biotechnology and medical device industries. The company's core offerings include discovery, safety assessment, toxicology, and pathology services, as well as supply of laboratory animals and related diagnostics. Services extend across in vivo and in vitro testing, biologics testing, and support for advanced therapies, helping clients accelerate drug development from early discovery through regulatory submission.

Founded in 1947 in Wilmington, Massachusetts, Charles River has grown through strategic investments and acquisitions to establish a broad portfolio of capabilities.

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