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Charles River Sees Flat Quarter, Expectations for 2013 Still High

By Zachary Brennan , 18-Feb-2013

CRL (Charles River Laboratories) saw a number of setbacks in the last quarter of 2012 but still expects growth in 2013.

Fourth-quarter 2012 net sales were down 3.7% from the same quarter in 2011 and sales in both the PCS (pre-clinical services) and RMS (research models and services) segments were slightly down when compared with the same quarter in 2011.  

James C. Foster, chairman, president and CEO of CRL remained optimistic in a conference call Thursday, saying gains from 2012 as a whole support the company’s 2013 guidance of 4% to 6% sales growth, which was raised by one half of one percentage point from earlier in 2012.

We continue to win market share in all three of our client segments, but some of the studies we expected to begin in the fourth quarter were postponed until 2013,” Foster said, adding that some of CRL’s biggest bio-pharmaceutical clients “are beginning to reemphasize early stage work.”

But so far, 2013 has not started off well. “Since the beginning of 2013, we have experienced continued slow spending globally,” Tom Ackerman, EVP and CFO of CRL, said.

Response

Analysts also seem more measured in their assessment of the company in the near term. “With no change to CRL's guidance and an incrementally tepid long-term outlook, in our view, we are less bullish now than we were when CRL first set 2013 guidance in December,” Tim Evans, senior analyst at Wells Fargo, wrote in an note to investors.

However, expectations among CRL executives remain high as Ackerman said he still expects “RMS sales to increase significantly from the fourth quarter level, which is consistent with the seasonal trend, and for PCS sales to be slightly higher sequentially.”

Many of CRL’s big pharma clients restricted their spending in the fourth quarter as they attempted to meet their financial goals for the year, Foster also said. But the company expects to take more of the market share of mid-tier pharma and academic clients in 2013.

Acquisitions

Those increases will be bolstered by CRL’s recent acquisitions of Accugenix to increase its microbial testing and a stake in Vital River to boost its Chinese research models market offerings.

Integration of Vital River has progressed well and “we are confident that this is the appropriate time to enter the Research Models and Services market in China,” Ackerman said.

Evans agreed, calling both deals “solid,” though the company moving forward “must choose bolt-on acquisitions wisely and avoid overpaying.”

Sequestration

As the US Congress looks at what spending cuts it must enact, some in the research community are preparing for the worst in cuts for the US NIH (National Institutes of Health).

But Foster thinks that even if the cuts are implemented, the “impact will be very modest” on CRL. Total sales for academic and government clients represent about 24% of the company’s total sales but a lot of those clients are in Europe, he added.

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