Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them.
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|Charles River Announces Second-Quarter 2011 Results from Continuing Operations|
- Sales of $288.3 Million -
WILMINGTON, Mass., Aug 02, 2011 (BUSINESS WIRE) -- Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2011. For the quarter, net sales from continuing operations were $288.3 million, effectively unchanged from $288.6 million in the second quarter of 2010. Foreign currency translation benefited the reported sales by 4.3%. Sales increased in the Research Models and Services (RMS) segment, but declined in the Preclinical Services (PCS) segment.
On a GAAP basis, net income from continuing operations for the second quarter of 2011 was $34.2 million, or $0.66 per diluted share, compared to $15.2 million, or $0.24 per diluted share, for the second quarter of 2010. The second-quarter 2011 GAAP results benefited from a $7.7 million gain ($0.15 per share both before and after tax) on the settlement of a life insurance policy for a former officer of the Company. The second quarter of 2010 included costs totaling $8.3 million pre-tax ($5.5 million, or $0.08 per share after tax), associated with the evaluation of acquisitions that were not incurred in 2011. The net accretion from stock repurchases since August 2010 also benefited the second-quarter results.
On a non-GAAP basis, net income from continuing operations was $35.9 million for the second quarter of 2011, compared to $32.9 million for the same period in 2010, an increase of 9.2%. Second-quarter diluted earnings per share on a non-GAAP basis were $0.70, an increase of 40.0% compared to $0.50 per share in the second quarter of 2010. The non-GAAP results benefited from higher sales and operating income in the RMS segment (due in part to foreign exchange), the impact of cost-savings actions implemented in the fourth quarter of 2010 and stock repurchases.
James C. Foster, Chairman, President and Chief Executive Officer, said, "The RMS segment's robust second-quarter performance, combined with operating efficiencies generated by our cost-savings initiatives and the benefit of our stock repurchase program, drove an impressive 40% increase in non-GAAP earnings per share."
"PCS sales declined slightly on a sequential basis, but we do not believe this result was reflective of a fundamental change in demand or pricing. Our continuing discussions with our large pharmaceutical clients suggest that they are increasingly comfortable with outsourcing, and in fact, are looking to outsource services which were previously considered core capabilities. One example of this trend is evident in sales for our Research Model Services businesses, which increased in both the first and second quarters of 2011."
"We have raised our 2011 sales and earnings per share guidance to reflect our strong first-half performance. Our guidance assumes that normal RMS seasonality and the addition of a 53rd week will create significant operating margin headwinds in the second half of the year. However, we are very pleased with the second-quarter performance and our outlook for the year."
The Company reports results from continuing operations, which excludes results of the Phase I clinical business that was divested on March 28, 2011. The Phase I business is reported as a discontinued operation.
Second-Quarter Segment Results
Research Models and Services (RMS)
Net sales for the RMS segment were $178.2 million in the second quarter of 2011, an increase of 6.6% from $167.1 million in the second quarter of 2010. Foreign currency translation benefited the sales growth rate by 5.3%. Excluding the effect of foreign exchange, RMS sales increased by 1.3%, primarily driven by higher sales of Other Products, which includes the In Vitro and Avian businesses.
In the second quarter of 2011, the RMS segment's GAAP operating margin was 31.3% compared to 28.3% for the second quarter of 2010. On a non-GAAP basis, the operating margin increased to 32.6% from 29.1% in the second quarter of 2010. The significant operating margin improvement was primarily attributable to sales volume leverage, as well as efficiencies derived from cost-savings actions.
Preclinical Services (PCS)
Second-quarter 2011 net sales from continuing operations for the PCS segment were $110.1 million, a decrease of 9.3% from $121.5 million in the second quarter of 2010. The PCS sales decline was due primarily to continued soft demand from our large pharmaceutical clients, as well as the impact of sales mix, which continues to be more heavily weighted towards short-term studies. Foreign currency translation benefited the sales growth rate by 2.9%.
The second-quarter 2011 GAAP operating margin increased to 7.2% from 5.4% in the same period in 2010. On a non-GAAP basis, the operating margin improved to 14.0% from 13.4% in the second quarter of 2010. The operating margin improvement was primarily attributable to cost-savings actions.
Stock Repurchase Update
On May 16, 2011, the Company completed its $150 million Accelerated Stock Repurchase (ASR) program. The Company repurchased a total of 3.8 million shares under the ASR program, nearly all of which were received upon initiation of the program in February 2011. Following the completion of the program, the Company repurchased approximately 0.5 million shares under a 10b5-1 trading plan in the second quarter of 2011 for $20.5 million. As of June 25, 2011, Charles River had $205.0 million remaining on its $750 million stock repurchase authorization.
For the first six months of 2011, net sales decreased by 1.2% to $574.1 million from $580.9 million in the same period in 2010. Foreign currency translation benefited net sales growth by 2.5%.
On a GAAP basis, net income from continuing operations for the first half of 2011 was $69.5 million, or $1.30 per diluted share, compared to $32.6 million, or $0.50 per diluted share, for the same period in 2010.
On a non-GAAP basis, net income from continuing operations for the first half of 2011 was $69.1 million, or $1.30 per diluted share, compared to $62.2 million, or $0.94 per diluted share, for the same period in 2010.
Research Models and Services (RMS)
For the first six months of 2011, RMS net sales were $351.5 million, an increase of 3.6% from $339.3 million in the same period in 2010. Foreign currency translation benefited net sales growth by 3.0%. On a GAAP basis, the RMS segment operating margin was 30.6% in the first half of 2011, compared to 28.7% for the prior-year period. On a non-GAAP basis, the operating margin was 31.9% in the first half of 2011, compared to 29.8% for the same period in 2010.
Preclinical Services (PCS)
For the first six months of 2011, PCS net sales were $222.6 million, a decrease of 7.9% from $241.5 million in the same period in 2010. Foreign currency translation benefited net sales growth by 1.9%. On a GAAP basis, the PCS segment operating margin was 7.7% in the first half of 2011, compared to 2.9% for the prior-year period. On a non-GAAP basis, the operating margin was 14.0% in the first half of 2011, compared to 11.6% for the same period in 2010.
Items Excluded from Non-GAAP Results
Items excluded from non-GAAP results in the second quarter of 2011 and 2010 were as follows:
(1) In the second quarter of 2011, these items were related primarily to an asset impairment associated with the Company's RMS large model operations and a gain related to the disposition of its RMS Discovery Services facility in Michigan.
Items excluded from non-GAAP results in the first half of 2011 and 2010 were as follows:
(1) In the first half of 2011, these items were related primarily to an asset impairment associated with the Company's RMS large model operations and a gain related to the disposition of its RMS Discovery Services facility in Michigan, as well as exiting a defined benefit plan in RMS Japan. In the first half of 2010, these items were related primarily to an asset impairment associated with the Company's planned disposition of its PCS facility in Arkansas.
The Company is increasing its forward-looking guidance based on continuing operations for 2011, which was originally provided on December 14, 2010 and updated on May 3, 2011. The Company has raised its guidance to reflect its strong first-half performance, particularly in the RMS segment. The revised guidance assumes stable revenue trends for the second half of the year, although RMS sales are expected to reflect normal seasonality. The RMS operating margin in the second half of 2011 will be pressured by seasonality and the effect of a 53rd week in the fourth quarter, which is characterized by light sales but normal costs. The increase in sales guidance is due primarily to foreign currency translation, which is now expected to benefit 2011 sales growth by up to 2% compared to 2010.
(1) These items include severance costs associated with the Company's fourth-quarter 2010 actions, as well as operating losses primarily attributable to the suspension of operations at its PCS facility in Massachusetts and the closure of its PCS facility in China.
(2) These items were related primarily to: (i) an asset impairment associated with the Company's RMS large model operations; (ii) costs associated with corporate legal entity restructuring; (iii) exiting a defined benefit plan in RMS Japan; (iv) an adjustment of contingent consideration related to acquisitions; and (v) a gain related to the disposition of its RMS Discovery Services facility in Michigan.
Charles River Laboratories has scheduled a live webcast on Wednesday, August 3, at 8:30 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of non-GAAP financial measures to comparable GAAP financial measures on the website.
Use of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets and other charges related to our acquisitions, expenses associated with evaluating acquisitions, charges and operating losses attributable to our businesses we plan to close or divest, severance costs associated with our cost-savings actions, taxes associated with the disposition of our Phase I clinical business, adjustments related to contingent consideration related to our acquisitions, a gain recognized upon the settlement of a life insurance policy of a former officer, fees and taxes associated with corporate subsidiary restructuring and repatriation, and the additional interest recorded as a result of the adoption in 2009 of an accounting standard related to our convertible debt accounting which increased interest and depreciation expense. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. There are limitations in using non-GAAP financial measures, as they are not prepared in accordance with generally accepted accounting principles, and may be different than non-GAAP financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of these often-one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions (and in certain cases, the evaluation of such acquisitions, whether or not ultimately consummated) is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities, such as business acquisitions, happen infrequently and the underlying costs associated with such activities do not recur on a regular basis. Non-GAAP results also allow investors to compare the Company's operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in the text of this press release, and can also be found on the Company's website at ir.criver.com.
Caution Concerning Forward-Looking Statements
This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate," "believe," "expect," "will," "may," "estimate," "plan," "outlook," and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements also include statements regarding our projected 2011 financial performance including sales and earnings per share; the future demand for drug discovery and development products and services (particularly in light of the challenging economic environment); including our expectations for stable revenue trends for the remainder of 2011; the development and performance of our services and products; market and industry conditions including the outsourcing of these services and present spending trends by our customers; the impact of specific actions intended to more accurately align our infrastructure to the current operating environment, and to improve overall operating efficiencies and profitability; and Charles River's future performance as delineated in our forward-looking guidance, and particularly our expectations with respect to sales and foreign exchange impact. Forward-looking statements are based on Charles River's current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to: the ability to successfully integrate businesses we acquire; the ability to execute our cost-savings actions on an effective and timely basis (including divestitures and site closures); the timing and magnitude of our share repurchases; negative trends in research and development spending, negative trends in the level of outsourced services, or other cost reduction actions by our customers; the ability to convert backlog to sales; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; continued availability of products and supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations; changes in tax regulation and laws; changes in generally accepted accounting principles; and any changes in business, political, or economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 23, 2011, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this news release except as required by law.
About Charles River
Accelerating Drug Development. Exactly. Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our approximately 7,500 employees worldwide are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit http://www.criver.com.
SOURCE: Charles River Laboratories International, Inc.
Charles River Laboratories International, Inc.