Charles River Laboratories posts sluggish results

By Kirsty Barnes

- Last updated on GMT

Related tags Cent Generally accepted accounting principles

Charles River Laboratories has posted its fourth quarter results
for 2006, painting a picture of sluggish profitability and sales.

The US-based contract research organisation (CRO) increased its operating income to $45.2m (€34.6m) and sales to $271.7m - a rise of 5 per cent for both on last year - and the profit margin of the business remained the same. The company's pre-tax profit, however, bucked the trend and rose 17 per cent. The Preclinical Services segment was the strong performer in the business and largely helped to offset the poorer performance in the Research Models and Services unit. Preclinical Services saw its sales increase by 9 per cent to $144.1m and its operating profit jump 42 per cent to $23.0m for the quarter. "Thissegment benefited from continuing demand for outsourced preclinical toxicology services and increased sales of Research Model Services and In Vitro products, as well as the October 2006 acquisition of Northwest Kinetics,"​ said the company in a statement. Foreign exchange also contributed 2.4 per cent to the net sales growth, said the firm. In addition, the segment's operating margin improved to 16.0 per cent from 12.2 per cent, partly attributed by the Charles River to "higher sales and improved operating efficiencies,"​ although what these "improved efficiencies"​ were not specified. Meanwhile the disappointing financial performance of the Research Models and Services unit was a drag on the business. Sales only increased 2 per cent to $127.7m, while operating profit fell 14 per cent compared to the 2005 fourth quarter, to $32.6m. At the same time the profit margin dropped from 30 to 25.6. Charles River Laboratories was asked by to comment on the results, however, it did not. However, this is what the firm had to say in a statement: "As expected, fourth-quarter sales of large research models were below the fourth quarter of the prior year due to an extended quarantine, which was completed in mid-December." "The segment's operating margin was lower than in the fourth quarter of 2005, primarily reflecting lower operating income in Japan compared to the prior year which included a one-time insurance settlement, lower sales of large research models, and $1.1 million of stock compensation expense associated with the adoption of [the new accounting standard] SFAS 123R." ​ Meanwhile the firm as a whole has been undergoing a phase of business restructure in order to refocus itself on its core competencies of laboratory animal medicine and preclinical services. In addition to buying privately-held Northwest Kinetics, which provided the CRO with its first Phase I clinical trials facility in the US, the company also sold its Phase II-IV clinical services business to fellow CRO Kendle and shut down its Interventional and Surgical Services business. Obviously these restructuring activities have also had some impact on the company's bottom line.

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