Lab services company Charles River Laboratories (NYSE: CRL) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 2.7% year on year to $984.2 million. Its non-GAAP profit of $2.34 per share was 12.8% above analysts’ consensus estimates.

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StockStory’s Take

Charles River Laboratories’ first quarter results reflected a period of stabilization amid shifting regulatory and market dynamics. Management attributed performance to stronger-than-expected demand in the Drug Discovery and Safety Assessment (DSA) segment, particularly from global biopharmaceutical clients seeking quicker study starts. CEO Jim Foster emphasized the company’s ongoing adaptation to regulatory developments, notably the FDA’s push for New Approach Methods (NAMs) to reduce animal testing in preclinical research. Segment performance was mixed, with resilience in research models and manufacturing partially offset by declines in certain specialty areas. The leadership team acknowledged that industry headwinds, such as government funding cuts and persistent uncertainties in biotech funding, continue to weigh on near-term visibility. CFO Flavia Pease credited cost-saving initiatives and improved study mix for supporting operating margins despite the revenue decline.

Looking ahead, Charles River Laboratories’ outlook is shaped by cautious optimism regarding market stabilization and the gradual adoption of alternative testing methods. Management raised its full-year adjusted EPS guidance, citing improved DSA bookings and a more favorable study mix, but remains wary of potential headwinds. CEO Jim Foster explained, “We are modestly increasing our full-year revenue guidance for the DSA segment based on improved bookings, though we are not assuming this trend will persist into the second half.” The company is closely monitoring regulatory changes, particularly the FDA’s evolving stance on NAMs, as well as broader factors such as NIH funding and tariffs. Strategic investments in non-animal platforms and continued cost discipline are expected to be key contributors to future performance.

Key Insights from Management’s Remarks

Management linked the quarter’s outperformance to a rebound in DSA bookings, cost savings from restructuring, and incremental progress in alternative testing methods. The company also highlighted the impact of regulatory changes and evolving client demand on its business mix.

• DSA bookings rebound: The DSA segment saw its net book-to-bill ratio rise above 1x for the first time in over two years, driven by improved bookings from global biopharma clients and fewer cancellations across all customer segments. Management noted that much of this activity was due to studies with faster start dates, reflecting a shift toward shorter-term project commitments.

• NAMs and regulatory alignment: CEO Jim Foster addressed the FDA’s recent push towards New Approach Methods (NAMs), which aim to reduce animal testing in drug development. While acknowledging the gradual nature of this shift, management emphasized Charles River Laboratories’ investments in NAMs platforms, such as organ-on-a-chip and in silico (computer-based) modeling, and reported approximately $200 million in annual DSA revenue from NAMs-related services.

• Segment-specific headwinds: The Research Models and Services (RMS) segment experienced a modest decline, primarily attributed to the timing of non-human primate (NHP) shipments in China and weaker Cell Solutions revenue. Academic and government clients presented a potential risk due to proposed NIH budget cuts, though no immediate impact was observed in the quarter.

• Manufacturing dynamics: Manufacturing revenue was flat year over year, with growth in Microbial Solutions offset by lower commercial revenue in the Cell and Gene Therapy CDMO business. Biologics Testing volumes started the year slowly, but management expressed confidence in a rebound as the year progresses, citing strong booking activity.

• Cost management and board changes: Ongoing restructuring and cost-saving initiatives contributed to operating margin stability. The company announced new board members and a strategic review in collaboration with Elliott Investment Management, aiming to identify value creation opportunities and optimize capital allocation.

Drivers of Future Performance

Management’s outlook for the remainder of the year hinges on sustained DSA momentum, regulatory adaptation, and prudent cost controls, with caution around funding and regulatory shifts.

• Evolving regulatory landscape: The FDA’s initiative to accelerate NAMs adoption will influence both client demand and Charles River Laboratories’ service mix. Management believes broader adoption of NAMs will be gradual and expects hybrid models (combining NAMs with animal studies) to become more common, especially in monoclonal antibody research.

• Market stabilization and client mix: Leadership anticipates continued stabilization in demand from small and midsized biotech clients, despite ongoing funding challenges. However, the company remains cautious about potential pullbacks in academic and government spending if NIH budget cuts materialize later in the year or in 2026.

• Cost discipline and operational efficiency: Continued focus on cost-saving measures and restructuring is expected to help maintain margins. Management projects durable savings from recent initiatives while balancing investment in new capabilities and preparation for possible market headwinds.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will track (1) whether DSA bookings and net book-to-bill ratios remain above 1x, (2) the pace of NAMs adoption and its impact on both revenue mix and client study designs, and (3) any signs of reduced spending from academic and government clients if NIH funding changes take effect. Additional attention will be given to the outcomes of the board’s strategic review and progress in Manufacturing segment recovery.

Charles River Laboratories currently trades at a forward P/E ratio of 15.8×. At this valuation, is it a buy or sell post earnings? Find out in our full research report (it’s free).

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