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    CRL
    Earnings call· Jun 2026(Q2 FY26)

    CHARLES RIVER LABORATORIES INTERNATIONAL Q2 FY26 earnings call CRL

    Aug 5, 2026 Source

    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

    5

    • 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

    3

    • 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

    16
    CategoryTargetConfidence
    Full-year 2026 Organic Revenue Growth
    flat to a 1% increase
    high materiality
    High
    Full-year 2026 Reported Revenue Growth
    decline in the range of 2.5% to 3.5%
    high materiality
    High
    Full-year 2026 Non-GAAP Earnings Per Share
    $11.15 to $11.45
    high materiality
    High
    Full-year 2026 Operating Margin Expansion
    approximately 120 to 150 basis points
    high materiality
    High
    Full-year 2026 Unallocated Corporate Costs
    approximately 6.0% of revenue
    medium materiality
    Medium
    Full-year 2026 Net Interest Expense (Non-GAAP)
    $103 million to $108 million
    low materiality
    High
    Full-year 2026 Non-GAAP Tax Rate
    23% to 24%
    medium materiality
    High
    Full-year 2026 Free Cash Flow
    $400 million to $420 million
    medium materiality
    High
    Full-year 2026 RMS Organic Revenue Growth
    low to mid-single-digit organic revenue decline
    medium materiality
    High
    Full-year 2026 DSA Organic Revenue Growth
    low single-digit growth
    high materiality
    High
    Full-year 2026 Manufacturing Organic Revenue Growth
    low to mid-single-digit growth rate
    medium materiality
    High
    Q3 2026 Reported Revenue Growth
    decline approximately 4% to 6%
    high materiality
    High
    Q3 2026 Organic Revenue Growth
    approximately 1% to 3% year-over-year
    high materiality
    High
    Q3 2026 Operating Margin Sequential Improvement
    approximately 200 basis points
    medium materiality
    High
    Q3 2026 Non-GAAP Earnings Per Share
    $2.90 to $3.00
    high materiality
    High
    Second Half 2026 Operating Margin Improvement
    at least 500 basis points
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    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 million0.2% 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 million1.4% 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 million1.3% organic increase—37.8% operating margin

    Operational metrics

    18
    Total Company Organic Revenue Growth
    0.1%YoY
    Q2 FY26

    First time revenue has improved organically since Q3 2023.

    Operating Margin (Non-GAAP)
    20.5%420 basis points sequential improvement
    Q2 FY26

    Improved due to less pressure from discrete margin headwinds and partial quarter benefit from divestitures.

    Non-GAAP EPS Sequential Growth
    47%sequential increase
    Q2 FY26

    Well above prior outlook of at least 30% sequential growth.

    Share Repurchases
    $100 million
    Q2 FY26

    Under $1 billion stock repurchase authorization approved last October.

    Average Diluted Share Count
    48.5 million
    FY26

    Assumed for updated guidance.

    Unallocated Corporate Costs
    $72 million7.2% of revenue vs 5.9% prior year
    Q2 FY26

    Primarily driven by increased costs related to deferred compensation plan.

    Deferred Compensation Plan Net Benefit
    $0.19
    Q2 FY26

    Net benefit associated with market performance of planned assets. Not expected to recur.

    Net Leverage
    2.5ximproved slightly from Q1
    end of Q2 FY26

    Even after recent share repurchases, balance sheet in good shape.

    Non-GAAP Tax Rate
    23.8%110 basis points increase YoY
    Q2 FY26

    Due primarily to impact of discrete items.

    Capital Expenditure
    $31 milliondeclined from $35 million last year
    Q2 FY26

    Represents approximately 3.1% of revenue.

    Biotech Funding (Trailing 12-month)
    nearly $100 billionjust shy of peak levels achieved during the pandemic
    trailing 12-month

    Invigorated funding environment supporting small and mid-sized biotech clients.

    Small and Mid-sized Biotech Revenue Growth
    essentially flat organicallyimprovement from declines in recent quarters
    Q2 FY26

    Just beginning to see benefit from improved DSA booking activity from late last year.

    Global Biopharmaceutical Client Revenue Growth
    increased organically
    Q2 FY26

    Demand trends improving gradually over the last 18 months.

    DSA Capture Rate
    nice uptick
    last few months

    Indicates effectiveness of pricing strategies and differentiation.

    Pricing
    stable
    Q2 FY26

    Not materially improved yet, at levels seen for the last few years, no more or less discounting.

    Academic and Government Client Revenue (RMS)
    —
    Q2 FY26

    Stable but not growing demand, historically a growth segment. Constrained by flat NIH budgets and slower grant processing.

    CRADL Business Growth
    stable
    Q2 FY26

    Not seeing the growth historically seen, hindered by 2% company formation growth (far off COVID levels).

    Company Formation Growth
    2%
    current

    Far off from COVID levels, impacting CRADL business growth.

    Industry KPIs

    10
    MetricValueDetails
    FCF conversion ROIC$400 million to $420 millionUSD
    Revenue EPS guidanceOrganic revenue: flat to 1% increase; Non-GAAP EPS: $11.15 to $11.45%; USD
    China revenue exposurerobust demand
    Pricing price realizationstable
    Diagnostics testing demandhigh single-digit rate%
    M a contribution synergies420 basis pointsbps
    Clinical research cro bookings$701 millionUSD
    Segment organic revenue growthDSA: 0.2%; RMS: -1.4%; Manufacturing: 1.3%%
    Bioprocessing orders book to bill1.9xx
    Organic core revenue growth by end market0.1%%

    Product announcements

    1
    ProductTypeDetails
    Enhanced Digital Pathology Solutionlaunch

    Deals & partnerships

    5
    Eli Lilly's TuneLab drug discovery platformCollaboration 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 TherapeuticsCollaboration 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 sitesDivestiture 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 businessesDivestiture of CDMO and cell solutions businesses.

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

    K.F. CambodiaAcquisition 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

    5
    RMS Segment Organic Revenue DeclineQ2 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 SpendingOngoing

    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 CostsQ2 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 RateQ2 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 TestingSince 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

    5

    DSA Organic Revenue Growth Acceleration

    Q3 FY26
    Current0.2% organic growth in Q2 FY26
    TargetAcceleration 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.

    Q&A highlights

    5

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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%.

    04

    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.

    05

    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.

    06

    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.

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