Charles River Laboratories slashed its outlook Wednesday on bleak expectations for its early research segment, and shares collapsed to a nine-month low.
The contract research organization is well known for providing research animals for drug development. This year, Charles River expects sales to decline 3% to 5%, a decline from its prior guidance for sales to be flat to up 3%. The company cited poor demand from pharmaceutical companies for its discovery and safety assessment tools.
Evercore ISI analyst Elizabeth Anderson noted the guidance cut comes on the back of a strong second quarter in which both revenue and adjusted profit beat expectations. She has an outperform rating and 265 price target on CRL stock.
"However, looking forward, the picture becomes much bleaker," she said in a report. "Pharma demand got worse in the second quarter, a trend that is now expected to continue, more than offsetting the biotech demand environment."
Charles River Laboratories stock tumbled 12.6% to 199.96. Shares opened at their lowest point since November. CRL stock opened below the lower boundary of a consolidating with a buy point at 275, according to MarketSurge.
Charles River Laboratories Notches Big Earnings Beat
Total revenue declined more than 3% to $1.03 billion, just ahead of forecasts for $1.02 billion, according to FactSet. Adjusted earnings easily beat expectations at $2.80 per share. Analysts projected $2.39.
Revenue from research models and services and manufacturing solutions beat forecasts, Evercore's Anderson said. Sales in the first segment dipped 1.7% to $206.4 million, while manufacturing sales inched 3.1% ahead to $192.3 million.
But discovery and safety assessment, or DSA, sales toppled 5.4% to $627.4 million. Analysts projected a stronger $629 million.
"While leading metrics for small- and midsize biotech clients have stabilized and trended somewhat more favorably, the company now expects demand trends for global biopharma clients to further deteriorate over the remainder of the year, and notably management anticipates these trends are likely to impact DSA revenue growth into 2025," William Blair analyst Max Smock said in a report.
Management also expects pricing to turn slightly negative by the end of the year. This is a "notable change" from the company's previous expectations around pricing being a slight positive in 2024, Smock said. He kept his outperform rating on CRL stock.
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