Impairment charges totalling US$395 million helped push US-based contract research organisation (CRO) Charles River Laboratories (CRL) into an operating loss of US$365.2 million for the fourth quarter of 2010, as net sales dipped by 2.9% to US$281.7 million.
Chairman, president and chief executive officer James Foster highlighted sequential sales increases in both the Research Models and Services (RMS) and Preclinical Services (PCS) segments, “which we believe reflected improved client demand across our early-stage development portfolio”.
Moreover, fourth-quarter sales were ahead of the analyst consensus, as were net earnings per share, once the impairment and other charges (e.g., US$10.9 million in severance costs) were stripped out.
All the same, the figures are unlikely to pacify major investors who have been pushing for a sale of all or part of CRL.
And there is worse to come. “We stated previously that we expect our first quarter results will be less robust than the fourth quarter of 2010, as our clients work through the normal process of prioritising projects and determining their use of external resources,” Foster pointed out.
Since last year’s abortive attempt to acquire WuXi PharmaTech in China, the US company has pursued a string of initiatives to restore shareholder value.
These include staff and spending cuts, closure or consolidation of some facilities, and looking at “strategic alternatives for certain non-strategic or underperforming Preclinical Services assets”, including a Phase I clinic in the US and a preclinical facility in China. As CRL noted in its Q4 results statement, its Phase I business is now being reported as a discontinued operation.
Last month the CRO appointed two new directors – Robert Bertolini and Richard Wallman – to its board, saying they shared “our commitment to advancing the four key initiatives we recently outlined, which are: operating margin expansion, improved free cash flow generation, disciplined investment in existing growth businesses and returning value to shareholders through share repurchases and other actions”.
Bertolini, who was executive vice president and chief financial officer at Schering-Plough until its merger with Merck & Co, and Wallman, former senior vice president and chief financial officer at Honeywell International, succeed outgoing directors D Nancy Chang and Douglas Rogers.
They will also be part of a new four-member Strategic Planning and Capital Allocation Committee, which will focus on financial strategies, capital allocation, evaluation of CRL’s overall cost structure, and related investment policies.
The operating loss of US$365.2 million reported for the three months ended 25 December 2010 compared with operating income of US$33.6 million for the same period of 2009. The latest quarter included goodwill and asset impairment charges of US$305,000 and US$90,030 respectively, mainly related to Charles River’s PCS segment.
The company recorded a net loss of US$5.94 per diluted share from continuing operations, compared with earnings per diluted share (EPS) of US$0.29 for the fourth quarter of 2009. Without the various charges, diluted EPS from continuing operations were US$0.60 in the latest quarter versus US$0.49 in the year-before period.
Analysts polled by Thomson Reuters had been looking for earnings per share of US$0.49 on revenues of $272 million.
Sales in the RMS segment dipped by 0.6% year on year to US$168.4 million in the fourth quarter, while the RMS operating margin shrank from 28.8% to 26.4%.
In Preclinical Services, net sales from continuing operations fell by 6.0% to US$113.3 million and impairment charges reduced the operating margin to minus 345.9%, compared with a 1.6% margin from continuing operations in Q4 2009.
Foster said CRL remained confident about its business prospects for 2011 and was reaffirming the guidance for full-year sales and non-GAAP EPS issued last December.
At that point, the company was forecasting sales of US$1,115 million to US$1,125 million and non-GAAP EPS of US$1.88 to US$1.93 for the whole of 2010. The full-year figures reported on Tuesday were net sales of US$1.13 billion, down by 3.3% on 2009, and non-GAAP EPS of US$1.99 versus US$2.35 per diluted share in the previous year.