What were proposal trends year-over-year and sequentially across client segments? Also, is AI already leading to more preclinical testing, or is that a future expectation?

Proposal volumes were up high single digits year-over-year for both global biopharma and biotech clients, and have improved sequentially for three quarters. Regarding AI, while the sample size of AI-assisted drug programs is small, the expectation is that AI will lead to more programs entering preclinical testing due to efficiencies and reinvestment in R&D. “What I can tell you is that AI-assisted drug discovery companies generally work on a lot of different programs rather than one program at a time. And as we're working with most of them or all of them on their programs as they are wet lab, I'm optimistic that this trend will show itself and that we will see more programs coming through from AI.”

Can you detail the bridge for the 2H margin step-up, especially the M&A component, and comment on whether this momentum will continue into 2027?

The 2H margin improvement of 500+ bps is driven by over half from acquisitions and divestitures, plus abatement of Q1 discrete costs (stock comp, NHP sourcing), and cost savings. For 2027, the company expects roughly $0.50 to $0.55 of additional EPS accretion from acquisitions and divestitures compared to 2026. “So said differently, if you take the $0.90 less the $0.35, you can expect roughly $0.50 to $0.55 of accretion just from the acquisitions and divestitures in 2027 versus 2026.”

Are there incremental ambitions for M&A or divestitures, or have the most impactful changes been actioned? Also, what is the latest on DSA NAMs revenue post recent acquisitions/divestitures?

Portfolio review is ongoing, and future M&A/divestitures are possible. The company has a clear M&A roadmap and will continue organic investments and buybacks. For NAMs, the PathoQuest acquisition is squarely in this space. Post-divestiture of European discovery assets, roughly two-thirds of the previously cited NAMs revenue will be retained, with organic investments bringing it back to prior levels. “So if you take those 2 together, a little bit of organic investment we have done in other areas, we're probably kind of back to where we were. But we will continue to drive that and our focus is on the regulated space here where most of our business is.”

CRL

Charles River Laboratories (CRL) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Health Care· May 7, 2026

Source: earnings call transcript

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

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

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

Category	Target	Timeline	Confidence
Full-year 2026 Organic Revenue Growth	0.5% to 1.5% decline high materiality	FY26	High
Full-year 2026 Non-GAAP EPS Growth	5% to 10% growth high materiality	FY26	High
Full-year 2026 Operating Margin Improvement	approximately 120 to 150 basis points high materiality	FY26	High
Second Half 2026 Operating Margin Improvement	over 500 basis points higher than the first 6 months of the year high materiality	H2 FY26	High
Second Quarter 2026 EPS Sequential Improvement	increasing at least 30% from the first quarter level of $2.06 high materiality	Q2 · FY26	High
Second Quarter 2026 Reported Revenue Growth	mid- to high single-digit rate decline year-over-year medium materiality	Q2 · FY26	High
Second Quarter 2026 Organic Revenue Growth	low single-digit rate decline year-over-year medium materiality	Q2 · FY26	High
Full-year 2026 Unallocated Corporate Costs	approximately 5.5% of total revenue low materiality	FY26	High
Full-year 2026 Net Interest Expense	$103 million to $108 million low materiality	FY26	High
Full-year 2026 Non-GAAP Tax Rate	22% to 23% low materiality	FY26	High
Full-year 2026 Free Cash Flow	$375 million to $400 million medium materiality	FY26	High
Full-year 2027 EPS Accretion from Acquisitions and Divestitures	roughly $0.50 to $0.55 high materiality	FY27	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
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 million	2.9% organic	—	25.9%

CRL operating KPIs by quarter

CRL operating KPIs stated on its earnings calls, by fiscal quarter
KPI	This call Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	Change vs prior quarter
Backlog DSA	$1.92B As previously mentioned, we are encouraged that the overall DSA demand environment is tracking to our expectation, resulting in a net book-to-bill of 1.04x and a slight sequential increase in backlog to $1.92 billion at the end of the first quarter. Source: earnings call transcript	$1.97B Net bookings increased significantly year-over-year and by 12.6% sequentially to $701 million in the second quarter resulting in an increase in the DSA backlog to $1.97 billion and a net book-to-bill of 1.9x. Source: earnings call transcript	+2.6%
Net bookings	$622M Net bookings totaled a solid $622 million, remaining above the $600 million threshold, driven by continued strength from our small and mid-sized biotech client base. Source: earnings call transcript	$701M Net bookings increased significantly year-over-year and by 12.6% sequentially to $701 million in the second quarter resulting in an increase in the DSA backlog to $1.97 billion and a net book-to-bill of 1.9x. Source: earnings call transcript	+12.7%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Deals & partnerships

K.F. Cambodia Acquisition 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.

PathoQuest Acquisition 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 businesses Divestiture of certain businesses to refine and refocus the portfolio on core competencies.

Completed on May 6.

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

Expected to be completed later in May.

Risks & headwinds

Higher stock compensation expense Q1 FY26

Contributed to 280 bps operating margin decline

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

Higher NHP sourcing costs and study starts Q1 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 shipments Q1 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 America Q1 FY26

Contributed to 5.5% RMS organic revenue decline

Mitigation:Partially offset by solid demand in China.

Lower revenue for discovery services Q1 FY26

Contributed to 1.4% DSA organic revenue decline

Mitigation:Due in part to prior site consolidation activities.

Client-specific challenge in Biologics Testing Past 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 NIH Q1 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 biotechs Q1 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 China Ongoing

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

DSA Organic Revenue Growth

second half of the year

Current -1.4%

Target Return 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.

Find out whether CRL delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.