US-based contract research organisation (CRO) Charles River Laboratories International is sticking with its previous sales and earnings guidance for 2009, despite reporting declines of 11% and 37% respectively in net sales and operating income for the first quarter.
The guidance given in early February, when Charles River announced its fourth-quarter results for 2008 and a 3% reduction in its workforce, was for diluted earnings per share (EPS) of US$1.86 to US$2.16 on a 2-7% fall in net sales for the whole of 2009 – the sales figure assuming a hit of 5.5% to 6.0% from unfavourable exchange rates.
In the first quarter, net sales dropped by 10.7% year on year to US$301.5 million. Declines in both the Research Models and Services (RMS) and the Preclinical Services (PCS) segments were blamed on the negative impact of currency translation and softer market demand “as pharmaceutical and biotechnology clients reprioritise their drug development pipelines and restructure their operations”. Currency exchange shaved 5.8% off net sales overall in the quarter, Charles River reported.
Sales in the RMS business were 4.2% down on the first quarter of 2008, to US$161.5 million. Without the impact of foreign exchange (-4.2%), RMS sales were flat “as growth of academic accounts offset softer demand from pharmaceutical and biotechnology clients”, the CRO said.
Lower sales volume and higher operating costs due to new US capacity brought into play in California and Maryland last year squeezed operating margins in the RMS segment, which were 29.4% compared with 33.1% in the year-before quarter.
In Preclinical Services, first-quarter net sales were US$140.0 million, a 17.2% fall on Q1 2008. The lower sales were mainly due to slower market demand from both pharmaceutical and biotechnology companies, as well as a 7.4% hit from currency translation.
As expected, Charles River added, lower capacity utilisation, pricing pressure and costs associated with the start-up of new facilities in China and Canada thinned out operating margins in the segment. These were 7.5% in the first quarter versus 13.8% in the opening quarter of 2008.
Operating income across the company was US$39.9 million in the quarter, down by 37.2% year on year, and diluted EPS were US$0.38 compared with US$0.63 in Q1 2008.
Consistent with expectations
“Our financial performance in the first quarter of 2009 was consistent with our expectations, which assumed softness in demand for both RMS and PCS and a negative impact from foreign currency exchange,” commented James Foster, chairman, president and chief executive officer of Charles River.
“While visibility in the preclinical market remains limited, we are pleased to report that pricing, inquiry levels and bookings appear to have stabilised, although at lower levels than in the prior year,” he added. “Based on these trends combined with our disciplined focus on expenses, we believe we will achieve the sales and earnings guidance that we previously provided for 2009.”
