Charles River (CRL) Q2 EPS Jumps 11%

Charles River Laboratories International (CRL 0.43%), a global provider of laboratory services and research models for drug development, announced its latest earnings results on August 6, 2025. The company reported GAAP revenue of $1,032.1 million, slightly up 0.6% year-over-year (GAAP), and ahead of the estimated $985.2 million (GAAP). Non-GAAP earnings per share (EPS) came in at $3.12, beating the analyst expectation of $2.50 (non-GAAP) and climbing 11.4% year over year on a non-GAAP basis. Although non-GAAP operating margins improved, GAAP profit and margins dropped due to higher charges relating to amortization, restructuring, and legal fees. The quarter reflected cost control and segment margin gains, but underlying organic sales trended negative, particularly in its largest business line. Management raised full-year 2025 guidance based on the performance but noted persistent operational challenges.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Strategic Focus

Charles River Laboratories International is a leading provider of research models, laboratory services, and manufacturing support for global drug development. Its business helps pharmaceutical and biotechnology companies, government agencies, and academic institutions advance therapies from discovery to safe use in humans. The company operates three primary segments: Discovery & Safety Assessment (DSA), which supports preclinical drug research and safety testing; Research Models & Services (RMS), offering laboratory animal models and related services; and Manufacturing Solutions (MS), focused on drug quality assurance, microbial testing, and contract manufacturing.

Over recent years, Charles River has concentrated on regulatory compliance, innovation in alternative research methods, and global optimization of its research facilities. It is actively restructuring and consolidating sites to manage costs and align resources with client demand. Major success factors include navigating evolving regulations, sustaining client relationships, and maintaining ethical standards through animal welfare initiatives. The firm also emphasizes the adoption of non-animal research techniques, supporting both regulatory standards and industry trends.

Quarterly Highlights and Financial Developments

GAAP revenue surpassed analyst expectations, despite only modest growth over last year. The non-GAAP operating margin rose to 22.1%, driven by margin improvements across all business segments on a non-GAAP basis. The company credited ongoing cost savings and restructuring for these gains. However, GAAP measures—prepared according to the standard accounting rules—painted a tougher picture. Operating margin on a GAAP basis fell from 14.8% to 9.7% due to elevated amortization from accelerated write-downs of certain client contracts, as well as continued restructuring and legal fees. GAAP net income declined to $52.3 million from $90.0 million in Q2 2024, mostly reflecting these non-core costs.

The largest segment, Discovery & Safety Assessment—which provides safety studies and early-stage drug research—recorded a decline in sales, with reported sales down 1.5% and organic revenue was down 2.4%. The segment’s non-GAAP operating margin improved, benefiting from ongoing cost controls, but GAAP operating margin was down due to legal and restructuring charges. Revenue softness came mainly from lower volumes in discovery and regulated safety services. Closure of U.S. Department of Justice investigations into the company's non-human primate supply chain removed a significant legal overhang for the segment.

Research Models & Services, which includes laboratory animal models and services such as genetically engineered models and insourcing solutions, posted stronger results. Revenue rose 3.3% for the Research Models and Services (RMS) segment, with operating margins expanding on both a GAAP and non-GAAP basis. Gains were attributed to higher sales from large research model products and research model services, along with restructuring-driven cost reductions.

The Manufacturing Solutions segment, home to quality testing and contract manufacturing, saw sales (GAAP) up 4.4%, led by growth in its Microbial Solutions (microbial testing products and services) business. Notably, non-GAAP margins for the Manufacturing Solutions segment jumped, but GAAP operating margin dropped sharply, driven by accelerated amortization of certain CDMO client relationships.

Throughout the company, profitability was supported by disciplined capital allocation and share buybacks, which decreased the average diluted shares outstanding and contributed positively to per-share results. The company generated $376.3 million in GAAP net cash provided by operating activities and invested $94.6 million in capital expenditures. The company repurchased $360.5 million of treasury stock over the first six months of 2025.

Material one-time events included significant amortization and restructuring charges, totaling over $65 million for amortization alone (GAAP). The closure of high-profile regulatory investigations brought some relief, but the company continues to highlight cost containment and legal compliance as top priorities.

Looking Ahead: Management Guidance and Trends to Watch

Following the results, management raised FY2025 guidance for both revenue and non-GAAP EPS. Updated expectations call for non-GAAP EPS of $9.90–$10.30, up from the previous non-GAAP range of $9.30–$9.80. The company now expects organic revenue to decline between 3.0% and 1.0%, slightly better than the previous outlook. Forecast improvements reflected better-than-expected financial performance in the DSA segment and positive foreign exchange effects. The revised guidance suggests improving core profitability on a non-GAAP basis, yet management noted revenue trajectories remain modestly negative, with organic revenue declining 1.8% in Q1 and 0.5% in Q2, and organic sales are still contracting.

Leaders continue to point to operational headwinds in major segments, especially DSA, where persistent demand weakness and a short-term boost in booking activity may not continue in the second half. Investors are encouraged to monitor regulatory changes that could affect drug development demand—particularly in safety testing and animal model usage—as well as ongoing impacts from potential U.S. government research funding reductions. The company’s multi-year cost reduction plan remains intact, with further site consolidations possible. Charles River Laboratories International does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.