Charles River Laboratories International, Inc. Q2 2025 results
Snapshot
Charles River Laboratories International, Inc. reported $1.03B of revenue in Q2 2025, up 0.6% year over year, with diluted EPS of $1.06 and an operating margin of 9.7%.
- Revenue
- $1.03B
- YoY growth
- +0.6%
- Diluted EPS
- $1.06
- Operating margin
- 9.7%
What management said
- •During the call, we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of our core operating results and guidance.
- •We reported another solid financial performance in the second quarter, meaningfully exceeding our prior outlook, due primarily to favorable DSA results.
- •To a lesser extent, favorable movements in foreign exchange also contributed to the outperformance in the second quarter and to our increased outlook for the year.
- •We have continued to see clear signs that the demand environment is stabilizing.
- •DSA demand trends, coupled with constructive discussions with our biopharmaceutical clients, have also reinforced our belief that the preclinical demand environment is stabilizing.
- •We never expected a straight line recovery in the net book-to-bill or broader DSA demand trends, and in fact, have often said that the sustained improvement in our businesses will not be linear.
- •The DSA business and our overall non-GAAP financial results continue to significantly outperform our expectations, and we are making gradual progress towards achieving a return to organic revenue growth.
- •As a result, we continue to take a measured and prudent approach to our outlook.
- •While we have not factored in further demand improvements this year, it is encouraging that the overall demand environment shows signs of stabilization.
- •Before I provide more details on these trends, let me provide highlights of our second quarter performance and updated outlook for the year.
- •We reported revenue of $1.03 billion in the second quarter of 2025, a 0.6% increase over last year, with nearly half of the revenue outperformance driven by foreign exchange.
- •On an organic basis, revenue declined 0.5%, driven by a low single-digit decline in the DSA segment, partially offset by low single-digit revenue increases in the RMS and manufacturing segments.
What went well
- •Charles River reported second quarter 2025 revenue of $1.03 billion, a 0.6% increase over the prior year, meaningfully exceeding the company's prior outlook due primarily to favorable DSA results.
- •Earnings per share were $3.12, an increase of 11.4% from the second quarter of last year, with operating margin improvement the primary driver of the robust earnings growth.
- •The operating margin was 22.1%, an increase of 80 basis points year-over-year, with margin improvement across all three segments reflecting cost savings from prior restructuring and operating leverage from better-than-expected first-half volume.
- •Both gross and net DSA bookings increased at mid-single-digit rates year-over-year in the quarter, contributing to a steady upward trajectory in net book-to-bill over the past 18 months (0.80x in H1 2024 to 0.93x in H1 2025).
- •The company raised full-year guidance, increasing 2025 organic revenue guidance by 150 basis points and raising non-GAAP EPS guidance by $0.55 at midpoint to $9.90-$10.30.
- •U.S. Fish and Wildlife cleared the Cambodian NHPs, giving the company flexibility to use these animals for work, including in the United States, and lifting the prior regulatory overhang.
What went wrong
- •On an organic basis, revenue declined 0.5%, driven by a low single-digit decline in the DSA segment.
- •DSA revenue was $618 million, a 2.4% organic decrease year-over-year, driven by lower revenue for both discovery and safety assessment services on lower sales volume.
- •The net book-to-bill dipped back below one times to 0.82x in the second quarter, largely driven by a sequential increase in cancellations and the DSA revenue outperformance.
- •The DSA backlog declined slightly to $1.93 billion from $1.99 billion the prior quarter.
- •Cancellations were up, concentrated in longer-term post-IND work, and second-half operating margin is expected to be below the first-half level of 20.7%.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Organic revenue | FY2025 | decline 2.5%-4.5% | decline 1%-3% | raised 150 bps |
| Reported revenue | FY2025 | — | decline 0.5%-2.5% | raised |
| Non-GAAP EPS | FY2025 | $9.35-$9.75 | $9.90-$10.30 | raised $0.55 at midpoint |
| DSA organic revenue | FY2025 | mid-single-digit decline | low to mid-single-digit decline | improved |
| Operating margin | FY2025 | 20-50 bps decline | flat to 30 bps decline | improved |
| Net interest expense | FY2025 | $107M-$117M | $100M-$105M | lowered $7M-$12M |
| Unallocated corporate costs | FY2025 | 5%-5.5% of revenue | approximately 5.5% of revenue | upper end |
| FX impact to revenue | FY2025 | approx 1% headwind | approx 50 bps tailwind | 150 bps benefit |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Total revenue | +0.6% reported, -0.5% organic | Favorable DSA results and FX, offset by low single-digit DSA organic decline |
| EPS | +11.4% | Operating margin improvement plus a $0.12 benefit from a lower-than-expected tax rate |
| Operating margin | +80 bps to 22.1% | Cost savings from prior restructuring and operating leverage from better-than-expected first-half volume |
| DSA revenue | -2.4% organic | Lower sales volume in discovery and safety assessment, partially offset by favorable mix of higher-price, longer-duration, specialty studies |
| Non-GAAP tax rate | +160 bps to 22.7% | Primarily the impact from stock-based compensation |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| DSA demand environment | Bottoming, uncertain | Stabilizing, slowly moving upward | improving |
| Net book-to-bill | 0.93x H1 2025 average | 0.82x in Q2 | improving over 18 months but lumpy quarter-to-quarter |
| Biotech segment | Mixed | Stable but mixed; smaller biotechs cash constrained, mid-sized performing better | stable |
| DSA hiring | Restructuring/reductions | Investing back into headcount to meet demand | improving |
| Spot pricing | Stable | Stable; mix favorable | stable |
| CDMO commercial revenue | Two commercial clients winding down | One relationship ended, ~$20M H1 revenue will not repeat in H2 | deteriorating |
Q&A summary
Can you talk about the current demand environment, including how pharma is thinking about it?
Demand is stabilizing for pharma and some trends have bottomed; revenue units up sequentially and proposals up year-over-year and sequentially. Biotech is a tale of two cities, stable but mixed, with smaller companies cash constrained until capital markets open, while mid-tier biotechs perform better. There is stabilization across all client bases, with pharma stronger given access to capital.
On CDMO, can you help us understand the actual impact in the quarter versus what is expected in the back half?
The $20 million is the wind-down of revenue for the first half (not just Q2), which becomes the headwind in the second half once the company no longer manufactures for that client. The margin on this work was a little higher than normal, and Q2 was also helped by a payment received in the quarter that was not quantified.
What is the right framing for the single CDMO client you are losing for the year?
There was a roughly $40 million headwind from changes to the CDMO client base, involving one terminated relationship and one with adjusted work levels. The full-manufacturing headwind is slightly below 500 basis points, and the analyst's framing of around $38M-$39M was described as in the right zip code.
What is driving higher cancellations on longer-term post-IND work and will it continue in the second half?
There was not a huge margin difference; it reflects a bolus of large, complex, expensive late-stage studies that canceled as clients prioritize portfolios and emphasize clinic work. It is hard to predict but is viewed as a point in time, and management does not think it will continue. The Q2 cancellation rate of 1% of bookings was not too dissimilar from the last 18 months.
How should we think about the back-half margin headwinds?
The primary headwinds are extra DSA hiring (~$10 million versus the first half), CDMO margins normalizing after a higher-margin first half including a one-time payment, and the timing of annual merit increases that began July 1 (about a 3.5% increase in the salary and labor cost pool comparing halves).
What level of book-to-bill is sufficient to support flat or positive DSA revenue growth, given the backlog?
The net book-to-bill has had a steady upward trajectory over 18 months, and while above one is desired it is not essential. The backlog is about 10 months and in a good place, allowing the company to slot in studies for those that slip or cancel, particularly for non-NHP studies, given the preclinical turnaround of about six to nine months.