Charles River Laboratories International, Inc.

Charles River's third-quarter reported revenue declined 2.2%, while organic revenue grew 4.7%. The organic measure adjusts for acquisitions, divestitures and currency. Adjusted operating margin reached 23% from 19.7%, helped by a different portfolio mix and higher safety-assessment sales.

Why reported earnings changed so much

Quarterly reported earnings of $6.86 per share included a $5.06-per-share benefit from reversing acquired tax reserves. Adjusted earnings were $3.09. The analysis of the earnings forecast explains why the reported annual upgrade is much larger than the adjusted upgrade.

The January acquisition of the Cambodian supplier included $233.3 million of seller tax reserves. Interest and penalties brought those reserves to approximately $246 million before their third-quarter reversal. The benefit included both income-tax and non-income-tax items and did not generate operating cash.

Annual outlook

The fiscal 2026 reported earnings forecast rose to $8.15 to $8.35 per share from $3.05 to $3.35. The adjusted forecast increased to $11.35 to $11.55 from $11.15 to $11.45. Acquisition, divestiture and restructuring costs help keep the annual reported forecast below the adjusted one, even after the tax benefit.

Completed acquisitions

On January 14, Charles River acquired assets of K.F. Cambodia, a supplier of non-human primates for research. Preliminary consideration was $507.3 million, including $335 million at closing and $172.3 million of acquisition-date fair value for deferred consideration. Only $5 million of deferred payments remained at September 26.

On April 17, it completed the acquisition of control of PathoQuest, which provides testing used in biopharmaceutical manufacturing. Total consideration was $67.4 million, including the value of Charles River's previously owned stake.

Disposals can carry continuing obligations

Charles River sold certain European Discovery Services businesses on May 22 for $126.4 million in cash net of selling costs.

Its May 6 disposal of the contract development and manufacturing and Cell Solutions businesses had different economics: Charles River paid $12.4 million net cash to the buyer. It also agreed to fund up to $45 million of future losses and capital spending over four years, which the company expected the buyer to use fully. The agreement separately allows performance-linked payments to Charles River of up to $50 million.

Cash and borrowing

Third-quarter operating cash flow improved to $254.1 million from $213.8 million. After capital spending, free cash flow rose to $207.3 million from $178.2 million. The nine-month comparison remains weaker.

Cash and cash equivalents were $200.4 million at September 26, excluding restricted cash. Debt and finance leases totaled $2.46 billion before debt-issuance-cost deductions, including about $9.7 million of finance leases.

The $2 billion revolving facility had $943.2 million outstanding and matures in December 2029. The company also reported $21.7 million of letters of credit.

Charles River repurchased $300 million of shares under its existing program in the first nine months, with $700 million of authorization remaining at September 26.