Is the company comfortable with its current business shape after divestitures, and what is the appetite for future deals or divestitures and overall capital allocation?

Birgit Girshick confirmed the benefits of divestitures for focus and financial improvement. She stated that while no imminent divestitures are planned, the company continuously evaluates its portfolio and has a healthy appetite for M&A in clear target areas. Glenn Coleman added that the balance sheet is strong with 2.5x net leverage, providing ample capacity for acquisitions and share repurchases. “from a point of divestitures, we absolutely are seeing the benefits from that, both financially in terms of our [ OI ] improvement but also from an ability to focus on the core portfolio.”

Are increasing capabilities of Chinese CROs and large firms bringing preclinical work in-house in China real risks, and how does CRL view this long-term?

Birgit Girshick stated that the early-stage chemistry/biology work, where Chinese CROs are strong, is no longer CRL's core business. For regulated work, she believes Western clients are not yet moving significant work to China due to complexity and regulatory nature. She noted that global biopharma investments are in early R&D, not regulated development, and that pricing for Western-focused Chinese CROs is moderating but still lower than Western pricing. “most of that work that they're doing is in the early stage like chemistry, biology, that we are no longer in the business of. So I couldn't tell you specifically if clients are looking for other providers there.”

What is the demand landscape by study type, especially for large molecule/NHP studies, and how does CRL's NHP supply from its acquired farms position it?

Birgit Girshick confirmed broad-based demand, with a healthy balance of pre-IND and post-IND studies, and strong demand for complex modalities like NHP studies. She explained that owning the NHP supply chain (Mauritius, Cambodia) allows control over quality, logistics, timing, and capacity, providing assurance to clients and a competitive advantage. She stated CRL is in a very healthy state of having animals available and will leverage this differentiation. “by having ownership of it, there's a couple of things that we can do that we would otherwise not be able to do. Number one, is control the quality, the logistics, the timing of shipments, and that is helping us a lot.”

CRL

Charles River Laboratories (CRL) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Health Care· Aug 5, 2026

Source: earnings call transcript

Executive summary

Charles River Laboratories Q2 FY26 — Strong DSA Bookings and Raised Full-Year Guidance

Charles River Laboratories delivered a strong Q2 FY26, exceeding revenue and EPS expectations, driven by a significant rebound in DSA bookings and organic revenue growth. The company raised its full-year guidance, reflecting improving biopharmaceutical demand, particularly from small and mid-sized biotechs, and the benefits of portfolio refinement. Management is focused on strategic initiatives to modernize operations and deepen client relationships, positioning for sustained growth despite ongoing softness in academic and government spending.

Highlights

DSA net book-to-bill rose to nearly 1.2x in Q2 FY26, the highest level in nearly 4 years and the third consecutive quarter above 1x.
Total company organic revenue returned to growth at 0.1% year-over-year in Q2 FY26, marking the first increase since Q3 2023.
Non-GAAP EPS of $3.02 in Q2 FY26 exceeded prior outlook, increasing 47% sequentially.
Operating margin improved 420 basis points sequentially to 20.5% in Q2 FY26.
Full-year organic revenue guidance was raised by 150 basis points to a range of flat to 1% increase.

Concerns

RMS segment organic revenue declined 1.4% in Q2 FY26 due to lower small model volumes in North America and for research model services (GEMS).
Unallocated corporate costs were higher than expected in Q2 FY26, totaling $72 million or 7.2% of revenue, partly due to deferred compensation plan market performance.
Non-GAAP tax rate increased 110 basis points year-over-year to 23.8% in Q2 FY26, with the full-year outlook raised by 100 bps, creating a $0.20 EPS headwind.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 Organic Revenue Growth	flat to a 1% increase high materiality	FY26	High
Full-year 2026 Reported Revenue Growth	decline in the range of 2.5% to 3.5% high materiality	FY26	High
Full-year 2026 Non-GAAP Earnings Per Share	$11.15 to $11.45 high materiality	FY26	High
Full-year 2026 Operating Margin Expansion	approximately 120 to 150 basis points high materiality	FY26	High
Full-year 2026 Unallocated Corporate Costs	approximately 6.0% of revenue medium materiality	FY26	Medium
Full-year 2026 Net Interest Expense (Non-GAAP)	$103 million to $108 million low materiality	FY26	High
Full-year 2026 Non-GAAP Tax Rate	23% to 24% medium materiality	FY26	High
Full-year 2026 Free Cash Flow	$400 million to $420 million medium materiality	FY26	High
Full-year 2026 RMS Organic Revenue Growth	low to mid-single-digit organic revenue decline medium materiality	FY26	High
Full-year 2026 DSA Organic Revenue Growth	low single-digit growth high materiality	FY26	High
Full-year 2026 Manufacturing Organic Revenue Growth	low to mid-single-digit growth rate medium materiality	FY26	High
Q3 2026 Reported Revenue Growth	decline approximately 4% to 6% high materiality	Q3 · FY26	High
Q3 2026 Organic Revenue Growth	approximately 1% to 3% year-over-year high materiality	Q3 · FY26	High
Q3 2026 Operating Margin Sequential Improvement	approximately 200 basis points medium materiality	Q3 · FY26	High
Q3 2026 Non-GAAP Earnings Per Share	$2.90 to $3.00 high materiality	Q3 · FY26	High
Second Half 2026 Operating Margin Improvement	at least 500 basis points high materiality	H2 FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Discovery and Safety Assessment (DSA) First organic growth since Q3 2023. Improvement was broadly driven across multiple study types and modalities, including IND-enabling studies and NHP-related studies. Operating margin decreased 180 bps YoY but increased 460 bps sequentially. Lower NHP sourcing costs from K.F. acquisition expected to benefit margin in Q3 (minimal) and significantly in Q4. Net bookings: $701 millionNet book-to-bill: 1.9xDSA backlog: $1.97 billion	$607 million	0.2% organic	—	25.6% operating margin
Research Models and Services (RMS) Primary drivers of decline were lower revenue for small models in North America and for research model services, largely offset by strong demand in China. Operating margin declined 80 bps due to lower sales volume and unfavorable geographic revenue mix. Academic and government clients' constrained spending is a headwind. Lower volume for small models in North AmericaLower volume for research model services (GEMS)Continued robust demand for research models in China	$209 million	1.4% organic decline	—	24.5% operating margin
Manufacturing Strong performance driven by high single-digit organic growth in Microbial Solutions. CDMO business was a headwind to organic growth for the partial quarter due to divestiture. Operating margin improved 500 bps YoY, driven primarily by the benefit of the CDMO divestiture. Expected to improve to mid-to-high single-digit rates in H2 as Biologics Testing rebounds. Microbial Solutions high single-digit growthCDMO business reduced segment organic growth by nearly 400 bpsBiologics Testing more modest growth	$188 million	1.3% organic increase	—	37.8% operating margin

CRL operating KPIs by quarter

CRL operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2026 Q1 FY26	This call 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.

Product announcements

Product	Type	Timeline	Details
Enhanced Digital Pathology Solution	launch	—

Deals & partnerships

Eli Lilly's TuneLab drug discovery platform Collaboration to provide nonclinical (wet lab) testing expertise to help build and optimize Eli Lilly's AI and machine learning drug discovery model.

In support of Lilly's goal to advance R&D modernization efforts, integrating traditional in vivo and in vitro solutions with AI or other in silico approaches.

Arovella Therapeutics Collaboration to provide next-generation sequencing (NGS) services to accelerate progress towards their alternative cancer treatment approaches using cell and gene therapy.

This collaboration leverages Charles River's innovative in vitro NGS testing solutions through its recent acquisition of PathoQuest.

Certain European discovery services sites Divestiture of certain European discovery services sites.

Completed in May 2026, part of portfolio refinement to focus on core competencies in regulated testing solutions.

CDMO and cell solutions businesses Divestiture of CDMO and cell solutions businesses.

Completed in May 2026, part of portfolio refinement to create a more streamlined offering.

K.F. Cambodia Acquisition of a non-human primate (NHP) supplier in Cambodia.

Strengthened portfolio through acquisition of suppliers in Cambodia and Mauritius in recent years, providing a more reliable supply of critical research models.

Risks & headwinds

RMS Segment Organic Revenue Decline Q2 FY26, expected low to mid-single-digit decline for FY26

1.4% organic decline in Q2 FY26

Mitigation:Partially offset by continued robust demand for research models in China.

Constrained Academic and Government Spending Ongoing

Not quantified directly, but cited as primary driver for RMS decline

Mitigation:None explicitly stated, but company is focusing on other segments.

Higher Unallocated Corporate Costs Q2 FY26, FY26

$72 million or 7.2% of revenue in Q2 FY26 (vs 5.9% prior year); FY26 outlook raised to 6.0% of revenue (from 5.5%)

Mitigation:Lower corporate costs expected in H2 due to favorable stock compensation expense related to CEO transition and lower fringe costs.

Increased Non-GAAP Tax Rate Q2 FY26, FY26

23.8% in Q2 FY26 (110 bps increase YoY); FY26 outlook raised to 23%-24% (100 bps increase), creating a $0.20 EPS headwind for FY26 ($0.10 in Q3)

Mitigation:None explicitly stated, but company has factored it into guidance.

Client-Specific Challenge in Biologics Testing Since mid-last year, expected to rebound in H2 FY26

Caused 'more modest growth' in Biologics Testing, reducing Manufacturing segment's organic growth rate

Mitigation:Expected to rebound in H2 FY26 after anniversarying the challenge.

What to watch in Q3 FY26

DSA Organic Revenue Growth Acceleration

Q3 FY26

Current 0.2% organic growth in Q2 FY26

Target Acceleration to 1-3% organic growth in Q3 FY26

Why it matters

Confirms the sustained recovery in biopharmaceutical demand and the effectiveness of strategic initiatives.

We expect organic revenue growth of approximately 1% to 3% year-over-year, reflecting improving demand trends in the DSA segment and an expected rebound in biologics testing growth rate which will drive higher manufacturing revenue growth.

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

Q&A highlights

How will AI affect the preclinical pipeline, leading to more IND-enabling studies, and when will this impact be seen in numbers?

Birgit Girshick stated that AI, by improving molecule design and target identification, should be a tailwind, driving more programs into safety assessment. She noted that AI-native companies are already running more programs. While timing is hard to estimate, positive impact is expected over the next few years, with material ramp-up taking longer. CRL is also investing in AI tools for internal efficiencies.

“once AI provides more productivity into the molecule design, target identification, makes more molecules may be available to move into the validation stage and the regulated safety assessment stage and makes the molecule design more efficient, we expect more programs to work itself through the safety assessment stage, the validation stage, the area that is core to us.”

asked by Kallum Titchmarsh · answered by Birgit Girshick

3 min read 6 chapters

Detailed narrative

Biopharmaceutical Demand Recovery and DSA Strength

The biopharmaceutical demand environment continued to strengthen in Q2 FY26, particularly within the DSA segment, where the net book-to-bill reached nearly 1.2x, the highest in almost four years and the third consecutive quarter above 1x. This recovery is broad-based, driven by both small/mid-sized biotechs (with trailing 12-month funding near $100 billion) and global biopharmaceutical clients.

The company anticipates this positive momentum will translate into accelerating organic revenue growth for the DSA segment and the total company in the second half of FY26.

Strategic Collaborations and AI Integration

Charles River is actively engaging with new technologies, including AI, to modernize drug discovery and internal operations. A key collaboration with Eli Lilly's TuneLab platform involves providing nonclinical testing expertise to optimize AI/machine learning drug discovery models. Management views AI as a future tailwind, expecting it to increase the volume of molecules entering validation and safety assessment.

Internally, CRL is implementing an enhanced digital pathology solution with AI-enabled workflows, projected to cut at least one week from standard pathology timelines.

Portfolio Refinement and Margin Expansion

The company's recent divestitures of certain European discovery services sites and CDMO/cell solutions businesses, completed in May 2026, are yielding significant financial benefits. These actions contributed to a 420 basis point sequential operating margin improvement to 20.5% in Q2 FY26.

Management expects these portfolio refinements, along with lower NHP sourcing costs, to drive at least 500 basis points of operating margin improvement in the second half of FY26 compared to the first half, with the Manufacturing segment's margin approaching 40%.

Capacity Expansion and Scientific Investment

Charles River is making organic investments to expand its scientific capabilities and accommodate future demand. This includes five ongoing lab sciences expansions globally, such as a new bioanalytical laboratory at Heriot Watt University in Scotland. These expansions are designed to support the growing demand for lab science services, particularly in large molecule bioanalysis and biomarkers, and to foster talent pipelines.

The company aims to modernize its labs with automation and digital systems to enhance speed and utilization.

Non-Human Primate (NHP) Supply as Competitive Advantage

The company's ownership of NHP suppliers in Cambodia and Mauritius provides a significant competitive advantage by ensuring a reliable and controlled supply chain for critical research models. This integration allows for better management of quality, logistics, and timing of NHP shipments, offering clients greater assurance for their studies.

This unique position is expected to contribute to market share gains and will significantly benefit the DSA operating margin in Q4 FY26 as lower sourcing costs are realized.

End-Market Trends and Client Segments

Both small/mid-sized biotechs and global biopharmaceutical clients are contributing to the improving demand environment. Small/mid-sized biotechs, supported by invigorated funding, showed essentially flat organic revenue in Q2, an improvement from prior declines. Global biopharmaceutical clients, having largely completed portfolio prioritization, are increasing their engagement with CRL for more programs and faster execution.

Conversely, the RMS segment continues to face headwinds from constrained academic and government spending, leading to a 1.4% organic decline in Q2.

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