Lab services company Charles River Laboratories (NYSE:CRL) reported revenue ahead of Wall Street’s expectations in Q4 CY2025, but sales were flat year on year at $994.2 million. Its non-GAAP profit of $2.39 per share was 1.9% above analysts’ consensus estimates.
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Charles River Laboratories (CRL) Q4 CY2025 Highlights:
- Revenue: $994.2 million vs analyst estimates of $980.9 million (flat year on year, 1.4% beat)
- Adjusted EPS: $2.39 vs analyst estimates of $2.35 (1.9% beat)
- Adjusted EBITDA: $237 million vs analyst estimates of $225.2 million (23.8% margin, 5.3% beat)
- Adjusted EPS guidance for the upcoming financial year 2026 is $10.95 at the midpoint, beating analyst estimates by 0.6%
- Operating Margin: -28.5%, down from -16.7% in the same quarter last year
- Organic Revenue fell 2.6% year on year (beat)
- Market Capitalization: $7.78 billion
StockStory’s Take
Charles River Laboratories’ fourth-quarter results were met with a negative market reaction, as sales remained flat and non-GAAP profits slightly exceeded Wall Street expectations. Management pointed to stabilization in the biopharma demand environment, particularly improved bookings in its Discovery and Safety Assessment (DSA) business, as a positive sign following a period of cautious client spending. CEO James C. Foster acknowledged that higher sourcing costs for non-human primates (NHPs) and a lag in small and mid-sized biotech client activity contributed to margin pressures, stating, “demand from both global biopharmaceutical clients and small and mid-sized biotechnology clients showed signs of improvement,” but that cost headwinds remained significant.
Looking ahead, management’s guidance for the upcoming year is shaped by expected margin improvements from recent acquisitions and ongoing cost-saving initiatives. Incoming CEO Birgit H. Gershick emphasized the anticipated benefits of the KF Cambodia acquisition for internal NHP sourcing, which should reduce costs in the DSA segment and gradually lift operating margins in the second half of the year. Gershick cautioned, however, that revenue growth may not be linear and that ongoing headwinds—including lower research model sales and ongoing industry uncertainty—could weigh on the first half, highlighting: “We are cautiously optimistic that the favorable DSA demand trends will continue in 2026, resulting in a return to organic revenue growth in the second half of the year.”
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to mixed demand trends, margin compression from elevated NHP sourcing costs, and sequential recovery in DSA bookings.
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Biopharma demand stabilization: Improved DSA bookings in both global and biotech segments reflected renewed client activity after a muted period, with the DSA net book-to-bill ratio rising to 1.1 in the fourth quarter. This was supported by increased funding for biotech clients, but management noted that benefits to revenue would lag by one to two quarters.
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NHP supply chain adjustments: Elevated NHP sourcing costs, due to higher-than-anticipated demand and reliance on open-market purchases, negatively impacted DSA margins. The acquisition of KF Cambodia is expected to secure more cost-effective NHP supply and support future margin improvement.
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Research models remain pressured: The Research Models and Services (RMS) segment continued to face soft demand from North American clients and lower NHP shipments, resulting in a year-over-year decline. Management does not anticipate a near-term recovery in small model sales to early-stage biotech clients.
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Manufacturing Solutions mixed: The Manufacturing segment saw growth in Microbial Solutions but was offset by lower Cell and Gene Therapy (CDMO) revenue after the loss of a major client. Biologics testing showed modest improvement, returning to growth after a challenging year.
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Portfolio reshaping and leadership change: Charles River Laboratories advanced its strategy to divest non-core businesses (around 7% of revenue) and completed leadership succession, with Gershick set to assume the CEO role. New hires in finance and legal functions are intended to support operational execution and compliance.
Drivers of Future Performance
Charles River Laboratories’ outlook emphasizes cost control, operational improvements from acquisitions, and a gradual recovery in DSA-driven demand as primary themes for the coming year.
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Margin recovery from KF Cambodia: Management expects the KF Cambodia acquisition to meaningfully lower NHP sourcing costs, supporting DSA margin expansion by over 100 basis points and driving most of the projected improvement in consolidated operating margin in the second half of the year.
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Cost savings and restructuring: Ongoing restructuring and process enhancements are targeted to generate at least $100 million in incremental annual cost savings, helping to protect margins against modest revenue trends and annual cost inflation. A cumulative $300 million in savings is anticipated from actions over the past three years.
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Segment-specific headwinds and recovery: RMS revenue is projected to decline due to lower NHP shipments and subdued early-stage biotech demand, while Manufacturing should rebound as client-specific challenges abate. DSA revenue growth is expected to return if strong bookings persist, but management warned that the pace may be uneven due to timing of study starts and backlog conversion.
Catalysts in Upcoming Quarters
As we look ahead, our analysts will monitor (1) the pace at which DSA bookings convert to revenue amid improved biotech funding, (2) the realization of margin improvements from the KF Cambodia acquisition and other cost initiatives, and (3) stabilization or recovery in RMS and Manufacturing, particularly in North America and China. Execution on planned divestitures and integration of new leadership will also be important signposts.
Charles River Laboratories currently trades at $158.05, in line with $158.53 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).
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