Charles River Announces Fourth-Quarter and Full-Year 2007 Results from Continuing Operations
WILMINGTON, Mass.--(BUSINESS WIRE)--Feb. 11, 2008--Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the fourth-quarter and full-year 2007. For the fourth quarter, net sales from continuing operations increased 17.0% to $318.0 million from $271.7 million in the fourth quarter of 2006. Both the Research Models and Services (RMS) and Preclinical Services (PCS) business segments reported strong net sales growth, as pharmaceutical and biotechnology companies continued to invest in basic research and increased their strategic use of outsourced drug development services. Foreign exchange contributed 4.2% to the net sales growth.
On a GAAP basis, net income from continuing operations for the fourth quarter of 2007 was $38.9 million, or $0.55 per diluted share, compared to $31.8 million, or $0.47 per diluted share, for the fourth quarter of 2006. The 17.0% increase in earnings per share resulted primarily from higher sales.
On a non-GAAP basis, net income from continuing operations was $45.9 million for the fourth quarter of 2007, compared to $39.0 million for the same period in 2006. Fourth-quarter diluted earnings per share on a non-GAAP basis were $0.65, an increase of 12.1% compared to $0.58 per share in the fourth quarter of 2006. Non-GAAP earnings per share in the fourth quarter of 2007 excluded $9.1 million of amortization of intangible assets related to acquisitions, a charge of $4.6 million for impairment and other charges related to the Company's exit from its preclinical facility in Worcester, Massachusetts, and a benefit of $2.1 million resulting from a deferred tax revaluation. For the fourth quarter of 2006, non-GAAP results excluded $9.8 million of amortization of intangible assets and stock-based compensation related to acquisitions and $0.9 million of charges related to cost-savings initiatives.
James C. Foster, Chairman, President and Chief Executive Officer, said, "A strong fourth-quarter performance capped a tremendous 2007 for Charles River, during which we clearly demonstrated the strength of our business model and the value that we provide to our global client base. Our financial results for the quarter and year reflect our continued focus on our core competencies of laboratory animal medicine and science and regulatory compliant preclinical services, coupled with aggressive investment to expand and strengthen our infrastructure to meet our clients' needs. As a result, we are better positioned, both today and for the future, to partner with our clients at this critical inflection point when they are increasingly adopting strategic outsourcing as a means to improve the efficiency and cost effectiveness of their drug development efforts. And increasingly, they are selecting Charles River to play an integral role in accelerating these efforts. With robust demand for our products and services, we see significant opportunities for continued growth in both our RMS and PCS businesses. As a result, we are reaffirming our 2008 guidance of sales growth in a range of 10% to 13%, GAAP earnings per share in a range of $2.59 to $2.69 and non-GAAP earnings per share in a range of $2.87 to $2.97."
Research Models and Services (RMS)
Sales for the RMS segment were $145.2 million in the fourth quarter of 2007, an increase of 13.7% from $127.7 million in the fourth quarter of 2006. Sales growth was driven by strong demand for research models in the United States and Europe, worldwide Transgenic Services, and In Vitro products.
In the fourth quarter of 2007, the RMS segment's GAAP operating margin increased to 27.1% compared to 25.6% in the fourth quarter of 2006. On a non-GAAP basis, which excluded charges of $0.7 million for acquisition-related amortization, the operating margin was 27.6% compared to 26.3% for the same period in the prior year. The improvement was due primarily to higher sales.
Preclinical Services (PCS)
Fourth-quarter net sales for the PCS segment were $172.9 million, an increase of 20.0% from $144.1 million in the fourth quarter of 2006. Continuing strong demand for general and specialty toxicology services from pharmaceutical and biotechnology customers was the primary factor which contributed to the sales growth. The addition of Northwest Kinetics' Phase I clinical services business, which was acquired on October 30, 2006, also contributed to the sales growth.
As expected, the additional costs associated with the transition to the new preclinical facilities in Massachusetts and Nevada and the negative impact of foreign exchange in Canada resulted in lower operating margins for the PCS segment. In the fourth quarter of 2007, the new Massachusetts facility reported a full quarter's costs compared to minimal costs in the fourth quarter of the prior year, and we also incurred operating costs in the new Nevada facility. The fourth-quarter GAAP operating margin declined to 13.1% from 16.0% in the same period in the prior year. On a non-GAAP basis, which excludes $8.3 million of acquisition-related amortization and $4.6 million of impairment and other charges associated with the Company's exit from its Worcester, Massachusetts facility, the operating margin declined to 20.6% from 22.7% in the fourth quarter of 2006.
For 2007, net sales from continuing operations increased by 16.3% to $1.23 billion, from $1.06 billion in 2006. Foreign exchange contributed approximately 2.9% to the sales growth rate.
On a GAAP basis, 2007 net income from continuing operations was $157.6 million compared to $125.2 million in 2006, an increase of 25.8%, and earnings per diluted share increased 27.9% to $2.29 from $1.79 in 2006.
On a non-GAAP basis, net income from continuing operations for 2007 was $180.2 million, compared to $154.2 million for 2006, an increase of 16.9%. Earnings per diluted share for 2007 were $2.62, an increase of 19.1% from $2.20 in 2006. In 2007, non-GAAP net income excluded $33.6 million of amortization and stock-based compensation costs associated with acquisitions, a charge of $6.3 million related to the Company's exit of its preclinical facility in Worcester, Massachusetts, and a charge of $0.8 million related to pre-acquisition Inveresk stock compensation taxes. Non-GAAP results also excluded a $2.0 million gain on the sale of real estate in Scotland and a benefit of $3.0 million resulting from a deferred tax revaluation. Non-GAAP net income for 2006 excluded acquisition-related charges of $38.3 million and charges of $6.2 million related to cost-savings initiatives.
For 2007, RMS net sales were $577.2 million, an increase of 12.1% from net sales of $515.0 million in 2006. The RMS segment's GAAP operating margin was 30.7% in 2007, compared to 28.7% for the prior year. On a non-GAAP basis, the operating margin was 31.0% compared to 29.4% in 2006.
For 2007, PCS net sales were $653.4 million, an increase of 20.2% over the $543.4 million reported in 2006. On a GAAP basis, the PCS segment operating margin was 15.8% in 2007, compared to 15.2% in the prior year. On a non-GAAP basis, the operating margin was 21.5% in 2007 compared to 22.6% in 2006.
The Company reaffirms its forward-looking guidance for 2008, which was originally provided on December 12, 2007.
2008 GUIDANCE----------------------------------------------------------------------Net sales growth (in %) 10% - 13%GAAP EPS estimate $2.59 - $2.69Amortization of intangible assets $0.28Non-GAAP EPS estimate $2.87 - $2.97----------------------------------------------------------------------
Discontinued operations included both the Interventional and Surgical Services business, the closure of which was finalized in the third quarter of 2007, and the Phase II-IV clinical services business, which the Company sold in the third quarter of 2006.
In the fourth quarter of 2007, the net loss from discontinued operations was $2.0 million. Including discontinued operations, net income for the fourth quarter of 2007 was $36.9 million, or $0.52 per diluted share, compared to net income of $35.2 million, or $0.52 per diluted share, in the fourth quarter of 2006.
For 2007, including a loss of $3.1 million from discontinued operations, net income was $154.4 million, or $2.25 per diluted share, compared to a net loss of $55.8 million, or $0.80 per diluted share, for 2006. The loss in the prior year was due in part to a $129.2 million goodwill impairment recorded in the first quarter of 2006 related to the sale of the Clinical Phase II-IV business.
Charles River Laboratories has scheduled a live webcast on Wednesday, February 12, at 8:30 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of non-GAAP financial measures to comparable GAAP financial measures on the website.
Use of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share from continuing operations, which exclude amortization of intangible assets and other charges related to our acquisitions, impairments due to our accelerated exit from our Worcester Preclinical Services facility, charges related to pre-acquisition Inveresk stock compensation charges, a deferred tax revaluation, and the gain on the sale of real estate in Scotland. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. There are limitations in using non-GAAP financial measures, as they are not prepared in accordance with generally accepted accounting principles, and may be different than non-GAAP financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities, such as business acquisitions, happen infrequently and the underlying costs associated with such activities do not recur. Non-GAAP results also allow investors to compare the Company's operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in the text of this press release, and can also be found on the Company's website at www.ir.criver.com.
Caution Concerning Forward-Looking Statements
This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate," "believe," "expect," "will," "may," "estimate," "plan," "outlook," and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements also include statements regarding our projected 2008 earnings; the future demand for drug discovery and development products and services, including the outsourcing of these services; the impact of specific actions intended to improve overall operating efficiencies and profitability; the timing of the opening of new and expanded facilities; future cost reduction activities by our customers; and Charles River's future performance as delineated in our forward-looking guidance, and particularly our expectations with respect to sales growth. Forward-looking statements are based on Charles River's current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to: a decrease in research and development spending, a decrease in the level of outsourced services, or other cost reduction actions by our customers; the ability to convert backlog to sales; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; continued availability of products and supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations; changes in tax regulation and laws; changes in generally accepted accounting principles; and any changes in business, political, or economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 27, 2007, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this news release except as required by law.
About Charles River
Accelerating Drug Development. Exactly. Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our more than 8,500 employees worldwide are focused on providing clients with exactly what they need to improve and expedite the discovery, development through first-in-human evaluation, and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit www.criver.com.
CONTACT: Charles River Laboratories International, Inc.Investor Contact:Susan E. Hardy, 781-222-6190Corporate Vice President, Investor RelationsorMedia Contact:Amy Cianciaruso, 781-222-6168Associate Director, Public Relations
SOURCE: Charles River Laboratories International, Inc.
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