Charles River Laboratories International second-quarter 2010 net sales decline 5.2%

Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2010. For the quarter, net sales were $292.1 million, a decline of 5.2% from $308.2 million in the second quarter of 2009. Foreign currency translation reduced the sales growth rate by 0.1%. A modest sales increase in the Research Models and Services (RMS) segment was offset by lower sales for the Preclinical Services (PCS) segment.

On a GAAP basis, net income attributable to common shareholders for the second quarter of 2010 was $14.5 million, or $0.22 per diluted share, compared to net income of $34.2 million, or $0.52 per diluted share, for the second quarter of 2009.

On a non-GAAP basis, net income was $32.1 million for the second quarter of 2010, compared to $43.1 million for the same period in 2009, a decrease of 25.5%. Second-quarter diluted earnings per share on a non-GAAP basis were $0.49, a decrease of 25.8% compared to $0.66 per share in the second quarter of 2009. Both the GAAP and non-GAAP results were impacted by lower sales volume and higher costs related to the Company's enterprise resource planning (ERP) initiative, offset in part by cost-savings actions implemented throughout 2009 and in the first quarter of 2010.

James C. Foster, Chairman, President and Chief Executive Officer, said, "We are disappointed that market demand for outsourced preclinical services did not rebound during the second quarter as we had previously expected. We continue to have extensive discussions with our biopharmaceutical clients, who maintain their intentions to build larger, strategic partnerships with us and increase the amount of outsourced activity. However, the timing of these decisions remains unclear and we do not believe that it is imminent. While our results provide reassurance that preclinical demand appears to have stabilized, positive indications such as the increased number of inquiries and improved June bookings are offset by their value, which is lower due to pricing. Therefore, we now expect PCS sales to be flat sequentially for the remainder of the year, and have tempered our RMS outlook to reflect lower sales of research models associated with preclinical studies. As a result, we have lowered our sales and EPS guidance for 2010."

Second-Quarter Segment Results

Research Models and Services (RMS)

Sales for the RMS segment were $167.1 million in the second quarter of 2010, an increase of 0.9% from $165.7 million in the second quarter of 2009. Foreign currency translation reduced the sales growth rate by 1.0%. Excluding the effect of foreign exchange, RMS sales improved by 1.9% as strong growth of In Vitro products and contributions from the Piedmont and Cerebricon acquisitions (May and August 2009, respectively) were partially offset by lower sales of large models. The sequential decline in RMS sales from the first quarter of 2010 was driven primarily by foreign exchange, particularly the weakening of the Euro, as well as the large models business.

In the second quarter of 2010, the RMS segment's GAAP operating margin was 28.3% compared to 30.7% for the second quarter of 2009. On a non-GAAP basis, the operating margin decreased to 29.1% from 31.9% in the second quarter of 2009. The margin decline was primarily attributable to lower sales volume of large models, as well as higher information technology and compensation costs.

Preclinical Services (PCS)

Second-quarter 2010 net sales for the PCS segment were $125.0 million, a decrease of 12.3% from $142.5 million in the second quarter of 2009. The PCS sales decline was due primarily to continued measured demand for our services from large pharmaceutical and biotechnology companies, as well as stable but lower than historical prices. Significantly lower sales of our clinical Phase I services also contributed. The sales decline was partially offset by the positive effect of foreign currency translation, which increased the growth rate by 0.8%.

A greater proportion of short-term, less complex studies in the sales mix, lower sales of clinical Phase I services and the continued impact of lower prices, partially offset by cost-saving actions, resulted in lower operating margins for the PCS segment. The second-quarter 2010 GAAP operating margin declined to 3.8% from 11.5% in the second quarter of 2009. On a non-GAAP basis, the operating margin declined to 12.0% from 17.2% in the second quarter of 2009. The PCS operating margin did improve sequentially by 270 basis points on a non-GAAP basis and 400 basis points on a GAAP basis when compared to the first quarter of 2010, driven primarily by the Company's plan to suspend operations at its PCS Massachusetts facility and transition clients to other sites within the global PCS network.

Six-Month Results

For the first six months of 2010, net sales decreased by 3.3% to $589.4 million from $609.7 million in the same period in 2009. Foreign currency translation benefited net sales growth by 1.6%.

On a GAAP basis, net income attributable to common shareholders was $31.8 million, or $0.48 per diluted share, for the first half of 2010, compared to $59.6 million, or $0.91 per diluted share, for the same period in 2009.

On a non-GAAP basis, net income for the first six months of 2010 was $61.5 million, or $0.93 per diluted share, compared to $81.3 million, or $1.24 per diluted share, for the same period in 2009.

Research Models and Services (RMS)

For the first six months of 2010, RMS net sales were $339.3 million, an increase of 3.7% from first-half 2009 net sales of $327.2 million, with foreign currency translation contributing 1.0% to the increase. The RMS segment's GAAP operating margin was 28.7% in the first half of 2010, compared to 30.1% for the prior-year period. On a non-GAAP basis, the operating margin was 29.8% compared to 31.7% in the first six months of 2009.

Preclinical Services (PCS)

For the first six months of 2010, PCS net sales were $250.1 million, a decrease of 11.5% from first-half 2009 net sales of $282.5 million. Foreign currency translation benefited net sales growth by 2.4%. On a GAAP basis, the PCS segment operating margin was 1.8% in the first half of 2010, compared to 9.5% in the prior-year period. On a non-GAAP basis, the operating margin was 10.7% in the first half of 2010 compared to 16.4% for the same period in 2009.