Send me real-time posts from this site at my email
Zacks

Charles River (CRL) Business Hurt by Macro and FX Headwinds

Charles River’s CRL dull Cell Supply business might dampen top-line growth. The global business environment continues to be challenging for the company. The stock currently carries a Zacks Rank #4 (Sell).

Over the past year, Charles River has been underperforming its industry. The stock has declined 44.4% compared with the industry’s 28.8% plunge. A revenue decline in the CDMO business as well as a challenging prior-year comparison for the Biologics Testing and Microbial Solutions businesses in the second quarter dragged Manufacturing Solutions revenues down. The Manufacturing segment's operating margin declined 460 basis points to 28.6% as a result of the expense escalation within the CDMO business.

The company’s cell supply business has been facing issues related to donor access. The cell supply business, including the HemaCare and Cellero, continued to be impacted by constraints on donor availability, which failed to recover completely from COVID-related restrictions.

Foreign exchange is a major headwind for Charles River as a considerable percentage of its revenues come from outside the United States. The strengthening of the euro and some other developed market currencies has constantly been hampering the company’s performance in the international markets.

In Q2, the impact of foreign currency translation reduced reported revenue growth by 3.4%. Further, Charles River has also reduced its reported revenue growth guidance by 450 basis points to reflect unfavorable movements in foreign currency translation.

The significant slash in 2022 guidance, reflecting headwinds associated with the CDMO business, foreign exchange due to the strengthening U.S. dollar, and interest expense due to the rising interest rate environment, increase concerns.

On a positive note, Charles River exited the second quarter of 2022 with better-than-expected earnings. The results highlighted 9.5% organic revenue growth, driven by strength across the DSA and Research Models and Services RMS business segments.

Within DSA, the company continued to benefit from strong sustained business trends. This segment reported 12.9% organic revenue growth in the second quarter of 2022. The DSA organic growth rate improved nearly 340 basis points from the first-quarter level and reached the low double-digit range. This was driven by the Safety Assessment business that continued to benefit from strong business trends such as higher pricing and increased demand.

Within RMS, organic revenue growth was driven by strong demand and meaningful price increases in the Research Models business in North America, as well as for Global Research Models Services, particularly Insourcing Solutions and GEMS. In the second quarter, RMS revenues increased 8.5% organically year over year, in line with the company’s high single-digit outlook for 2022. Organic revenue growth was driven by strong demand and meaningful price increases in the Research Models business in North America, as well as for Global Research Models Services, particularly Insourcing Solutions and GEMS.

Stocks to Consider

Some better-ranked stocks in the broader medical space areAMN Healthcare Services, Inc. AMN, Patterson Companies, Inc. PDCO and McKesson Corporation MCK.

AMN Healthcare, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 3.2%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 15.7%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcarehas gained 7.3% against the industry’s 28.9% fall in the past year.

Patterson Companies, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 9.6%. PDCO’s earnings surpassed estimates in all the trailing four quarters, the average beat being 16.5%.

Patterson Companies has gained 3.6% against the industry’s 6.3% fall over the past year.

McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 9.9%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average beat being 13%.

McKesson has gained 80.8% against the industry’s 6.3% fall over the past year.




Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
McKesson Corporation (MCK): Free Stock Analysis Report
 
Charles River Laboratories International, Inc. (CRL): Free Stock Analysis Report
 
Patterson Companies, Inc. (PDCO): Free Stock Analysis Report
 
AMN Healthcare Services Inc (AMN): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue