Charles River's profit forecast jumps. Its tax windfall brings no cash.

Charles River Laboratories more than doubled its annual reported earnings forecast after removing tax liabilities it had recorded when buying assets of a Cambodian supplier. The change is much larger than the improvement in its adjusted profit outlook.

Research by Ticker Byline shows that the midpoint of the reported forecast rose by $5.05 per share, while the adjusted midpoint rose by 15 cents. The company's annual reconciliation includes a $5.03-per-share reserve-reversal benefit, close in scale to the reported upgrade.

The benefit reaches two parts of the income statement

The third-quarter reversal totaled $245.6 million, or $5.06 per share. It helped lift reported quarterly earnings to $6.86 per share, above adjusted earnings of $3.09.

The reserves were recorded liabilities for the seller's tax positions when Charles River bought assets of K.F. Cambodia in January. They had grown with interest and penalties before the company reversed them following a new tax law and completion of tax requirements.

About $201.1 million of the benefit entered the income-tax line. Another $44.6 million concerned non-income-tax reserves and reduced operating expenses. The reversal was noncash and is removed in the reconciliation from net income to operating cash flow.

The operating quarter also improved

Adjusted earnings per share rose 27.2%. Organic revenue grew 4.7%, even though reported revenue declined 2.2% following business disposals.

Adjusted operating margin increased to 23% from 19.7%. Charles River cited both the divestiture of its contract development and manufacturing business and higher safety-assessment sales. A different business mix and stronger activity both contributed. The company also said a lower tax rate helped its adjusted earnings and the annual upgrade.

Two very different upgrades

The reported annual earnings forecast is now $8.15 to $8.35 per share, compared with $3.05 to $3.35 in August. The adjusted range moves to $11.35 to $11.55 from $11.15 to $11.45.

The latest quarter also generated more cash. Operating cash flow rose to $254.1 million from $213.8 million, and free cash flow increased to $207.3 million from $178.2 million.

Over the first nine months, however, operating cash flow fell to $474.9 million from $590.1 million. The company attributed the decline mainly to higher incentive payments and professional-service costs for efficiency work and transactions. After capital spending, cash flow was about $341.1 million, down from $459.9 million.

The Charles River profile follows the completed acquisitions and disposals, debt and remaining deal obligations behind these comparisons.