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    CRL
    Earnings call· Mar 2026(Q1 FY26)

    CHARLES RIVER LABORATORIES INTERNATIONAL Q1 FY26 earnings call CRL

    May 7, 2026 Source

    Executive summary

    Charles River Laboratories Q1 FY26 — Strategic Initiatives Drive Margin Expansion Outlook

    Charles River Laboratories reported Q1 FY26 results in line with expectations, with organic revenue declining slightly amidst anticipated margin pressures. The company is focused on its 'Pathway to Purpose' strategic framework, emphasizing modernization, scientific portfolio strengthening, and client-centricity. Management anticipates significant operating margin expansion in the second half of the year, driven by strategic acquisitions, divestitures, and efficiency initiatives, with a clear line of sight to achieving its full-year guidance.

    Highlights

    5

    • Net book-to-bill for DSA segment was 1.04x in Q1 FY26, indicating solid demand.

    • Net bookings totaled $622 million in Q1 FY26, remaining above the $600 million threshold.

    • Manufacturing segment organic revenue increased 2.9% in Q1 FY26, driven by Microbial Solutions.

    • Operating margin for the Manufacturing segment improved by 280 basis points to 25.9% in Q1 FY26.

    • Repurchased approximately $200 million in shares under the $1 billion authorization in Q1 FY26.

    Concerns

    5

    • Organic revenue declined 1.5% in Q1 FY26, in line with expectations.

    • Non-GAAP operating margin declined 280 basis points to 16.3% in Q1 FY26.

    • Non-GAAP earnings per share declined 12% to $2.06 in Q1 FY26.

    • RMS segment organic revenue declined 5.5% in Q1 FY26, due to lower small and large model sales.

    • DSA operating margin decreased 290 basis points to 21.0% in Q1 FY26, due to increased study-related direct costs.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full-year 2026 Organic Revenue Growth
    0.5% to 1.5% decline
    high materiality
    High
    Full-year 2026 Non-GAAP EPS Growth
    5% to 10% growth
    high materiality
    High
    Full-year 2026 Operating Margin Improvement
    approximately 120 to 150 basis points
    high materiality
    High
    Second Half 2026 Operating Margin Improvement
    over 500 basis points higher than the first 6 months of the year
    high materiality
    High
    Second Quarter 2026 EPS Sequential Improvement
    increasing at least 30% from the first quarter level of $2.06
    high materiality
    High
    Second Quarter 2026 Reported Revenue Growth
    mid- to high single-digit rate decline year-over-year
    medium materiality
    High
    Second Quarter 2026 Organic Revenue Growth
    low single-digit rate decline year-over-year
    medium materiality
    High
    Full-year 2026 Unallocated Corporate Costs
    approximately 5.5% of total revenue
    low materiality
    High
    Full-year 2026 Net Interest Expense
    $103 million to $108 million
    low materiality
    High
    Full-year 2026 Non-GAAP Tax Rate
    22% to 23%
    low materiality
    High
    Full-year 2026 Free Cash Flow
    $375 million to $400 million
    medium materiality
    High
    Full-year 2027 EPS Accretion from Acquisitions and Divestitures
    roughly $0.50 to $0.55
    high materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Discovery and Safety Assessment (DSA)
    Organic revenue declined due to lower discovery services, partially offset by stable Safety Assessment services. Operating margin decreased due to increased study-related direct costs, including higher NHP sourcing costs and study starts. Demand environment remains solid, supporting a return to organic revenue growth in the second half.
    Net book-to-bill: 1.04xBacklog: $1.92 billionNet bookings: $622 million
    		$597 million-1.4% organic—21.0%
    Research Models and Services (RMS)
    Organic decline driven by lower sales of small and large models and research model services. Small models revenue pressured by lower North America volume, partially offset by solid increase in China volume. Large model revenue affected by timing of NHP shipments. Operating margin declined due to unfavorable revenue mix from NHP timing and lower small model sales volume in North America.
    		$208 million-5.5% organic—24.7%
    Manufacturing
    Organic growth driven by strong demand for Microbial Solutions, primarily Endosafe and Celsis platforms. Operating margin improved due to leverage from higher revenue and cost savings. CDMO performance negatively impacted Q1 growth rate by approximately 350 basis points due to a client loss, but this impact will subside post-divestiture.
    		$191 million2.9% organic—25.9%

    Operational metrics

    12
    Non-GAAP Operating Margin
    16.3%-280 bps YoY
    Q1 FY26

    Decline driven by higher stock compensation, NHP study-related costs, and lower NHP revenue in RMS.

    Non-GAAP EPS
    $2.06-12% YoY
    Q1 FY26

    Primarily driven by lower operating margin, but exceeded prior outlook of high teens decline.

    Share Repurchase
    $200 million
    Q1 FY26

    Part of the $1 billion stock repurchase authorization approved last October.

    Unallocated Corporate Costs
    $63 million6.4% of revenue
    Q1 FY26

    Increased from 5.3% last year, primarily due to timing of stock compensation expense related to CEO transition.

    Net Interest Expense
    $26 million-$0.8 million YoY
    Q1 FY26

    Decline year-over-year.

    Net Leverage
    2.6x
    Q1 FY26

    At the end of the first quarter.

    Non-GAAP Tax Rate
    22.5%-20 bps YoY
    Q1 FY26

    Decrease due to favorable impact from last year's enactment of OB3.

    Capital Expenditure
    $56 million-$3 million YoY
    Q1 FY26

    Declined modestly from $59 million last year.

    Cumulative Annualized Cost Savings
    $300 million
    Annualized

    From actions taken over the past few years.

    Incremental Cost Savings
    $100 millionabove 2025 levels
    FY26

    Primarily driven by efficiency initiatives.

    RMS China Revenue Exposure
    <5%
    Q1 FY26

    Small part of overall Charles River revenue, but a critical asset for access to the Chinese market.

    Proposal Volume Growth
    high single digitsYoY
    Q1 FY26

    Indicates continued booking momentum and client readiness for new work.

    Industry KPIs

    5
    MetricValueDetails
    Revenue EPS guidanceOrganic revenue decline of 0.5% to 1.5%; Non-GAAP EPS of $10.80 to $11.30 (5% to 10% growth)
    China revenue exposure<5%%
    Pricing price realizationpretty stable
    M a contribution synergies$0.35USD/share
    Segment organic revenue growthLow to mid-single digits decline (DSA); Mid-single digits decline (RMS); Mid-single digits decline (Manufacturing)%

    Deals & partnerships

    4
    K.F. CambodiaAcquisition of assets to strengthen and secure non-human primate (NHP) supply chain for Safety Assessment operations.

    Combined with Noveprim, Charles River expects to internally source most of its future NHP supply requirements for the DSA segment.

    PathoQuestAcquisition to advance New Approach Methodologies (NAMs) capabilities by adding an in vitro next-generation sequencing platform for quality control testing of biologics drugs.

    Completed in April. Squarely in the NAMs space, replacing in vivo virology work with next-generation sequencing.

    CDMO and Cell Solutions businessesDivestiture of certain businesses to refine and refocus the portfolio on core competencies.

    Completed on May 6.

    Certain European Discovery sitesPlanned sale of sites to refine and refocus the portfolio on core competencies.

    Expected to be completed later in May.

    Risks & headwinds

    11
    Higher stock compensation expenseQ1 FY26

    Contributed to 280 bps operating margin decline

    Mitigation: Timing-related, expected to subside in Q2.

    Higher NHP sourcing costs and study startsQ1 FY26

    Contributed to 290 bps DSA operating margin decline

    Mitigation: Expected to subside in Q2, with significant improvement in Q4 for DSA segment.

    Lower NHP revenue in RMS due to timing of shipmentsQ1 FY26

    Contributed to 5.5% RMS organic revenue decline

    Mitigation: NHP unit volume in Q1 expected to be the lowest point for the year, expected to subside in Q2.

    Lower revenue for small models in North AmericaQ1 FY26

    Contributed to 5.5% RMS organic revenue decline

    Mitigation: Partially offset by solid demand in China.

    Lower revenue for discovery servicesQ1 FY26

    Contributed to 1.4% DSA organic revenue decline

    Mitigation: Due in part to prior site consolidation activities.

    Client-specific challenge in Biologics TestingPast several quarters

    Headwind for past several quarters

    Mitigation: Expected to rebound as the year progresses after anniversarying the challenge.

    Less favorable FX rates (strengthening U.S. dollar)FY26

    Reduced reported revenue outlook by 50 bps

    Mitigation: FX headwind offset by accretion from stock repurchases.

    Government uncertainty and funding pressures at NIHQ1 FY26

    Modestly impacted client spending levels

    Mitigation: Revenue from global academic and government client base remained stable due to essential nature of research solutions.

    Tepid demand from start-up biotechsQ1 FY26

    Small and mid-sized biotechs revenue declined in Q1

    Mitigation: Reflects softer DSA booking activity last summer and lag between booking and revenue generation; expected to improve in upcoming quarters.

    Geopolitical risk in ChinaOngoing

    Not quantified

    Mitigation: Company is watching the market closely and evaluating expansion based on customer demand, growth rates, and geopolitical risk.

    Competition from Asia (outsourcing trend)Ongoing

    Not quantified

    Mitigation: Evaluating the trend of early-stage routine work outsourcing to lower-cost countries; core market relationships in North America and EU remain strong.

    What to watch in Q2 FY26

    5

    DSA Organic Revenue Growth

    second half of the year
    Current-1.4%
    TargetReturn to growth

    Why it matters

    DSA segment's return to growth is a key indicator of overall business recovery and demand strength.

    The DSA demand environment remains solid as demonstrated by a net book-to-bill of 1.04x in the first quarter and continues to support a return to DSA organic revenue growth in the second half of the year.

    Q&A highlights

    5

    Can you discuss typical seasonality in demand, especially for Q1, and provide an update on NAMs demand and client conversations?

    Q1 seasonality is normal, with slower starts due to budget approvals and program reprioritization. Biotech funding is better, and pharma clients are speeding up work. NAMs are an evolving part of toxicology studies, with recent acquisitions like PathoQuest. It's an evolution, not a revolution, and will be integrated into DSA and other divisions' revenue models.

    “It's an evolution. It's not a revolution. So it will take time, but you will hear more and more and more about us bringing those technologies in. What I want to point out, it's not a separate business. It will always be part of our DSA and other divisions revenue model, and it will just continue to grow.”

    asked by Elizabeth Anderson · answered by Birgit Girshick

    2 min read6 chapters

    Detailed Narrative

    01

    Pathway to Purpose Strategic Framework

    Charles River is implementing a refreshed strategic framework called 'Pathway to Purpose,' focusing on modernizing the company, strengthening its scientific portfolio, and enhancing client-centricity. This framework aims to drive profitable revenue growth and optimize financial performance through disciplined capital deployment. The company plans to provide a deeper dive into this strategy at an Investor Day in September.

    02

    Modernization and Efficiency Initiatives

    The company is actively working to become faster, more agile, and data-driven, expecting to generate at least $100 million in incremental cost savings in FY26 above 2025 levels. Cumulatively, over $300 million in annualized cost savings are expected from actions taken over the past few years. These efforts, alongside strategic divestitures, are anticipated to be key drivers for meaningful operating margin expansion.

    03

    Strengthening Scientific Portfolio and NAMs

    Charles River continues to strengthen its scientific capabilities through strategic actions, including the acquisition of K.F. Cambodia to secure NHP supply for Safety Assessment operations. The recent acquisition of PathoQuest advances New Approach Methodologies (NAMs) capabilities with an in vitro next-generation sequencing platform. The company is committed to integrating NAMs into its business model through organic development, in-licensing, and M&A, viewing it as an evolution rather than a revolution.

    04

    Client-Centric Approach and Technology Adoption

    The company is doubling down on its client-centric approach, leveraging technology, including AI, to improve sales effectiveness, KPI transparency, and lead generation. Its Apollo cloud-based platform provides real-time access to scientific data and decision support tools, expanding across various business units. AI is seen as a tool to support R&D, potentially increasing IND approvals due to faster drug discovery, and is being leveraged for virtual control groups (VCGs) in safety assessment studies to reduce reliance on animal models.

    05

    End Market Demand Trends

    The overall biopharma demand environment stabilized last year, with pockets of improvement for both global biopharmaceutical and small/mid-sized biotechnology clients. Global biopharma demand trends have improved following restructuring activities, while biotech demand has seen resurgence due to a reinvigorated funding environment and increased M&A activity. However, demand from start-up biotechs remains tepid, reflecting constrained earlier-stage funding.

    06

    Q1 Financial Performance and Outlook

    Q1 FY26 results were in line or slightly better than expected, with organic revenue declining 1.5% and non-GAAP EPS at $2.06. The operating margin declined to 16.3% due to discrete factors like higher stock compensation, NHP study-related costs, and lower NHP revenue timing. Management expects a significant sequential improvement in Q2, with operating margin improving over 500 basis points in the second half of the year, driven by strategic initiatives and abatement of Q1 headwinds.

    AI-generated summary of the company’s earnings call. Not investment advice.