What Management Said
Read the full Q1 2026 transcript ↗They will comment on our results for the first quarter of 2026, as well as our financial guidance. During the call, we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of our core operating results and guidance. Our teams have already put forth significant efforts to plan for the future, and I'm proud to lead the company into its next chapter of growth and evolution. Pathway to Purpose is a disciplined approach to driving growth and shareholder value through the following key priorities.
This will lead us to drive profitable revenue growth and optimize our financial performance. We will also continue to take a balanced and disciplined approach to capital deployment, including organic investments, M&A, and other uses of capital. We are evaluating new initiatives designed to enable us to continue to modernize the company and how we operate and drive additional savings to generate meaningful operating margin expansion in the future. As we mentioned last quarter, our acquisition of the assets of K.F.
Combined with Noveprim, in which we acquired a controlling stake in 2023, we own and expect to internally source most of our future NHP supply requirements for the DSA segment. In April, we completed the acquisition of PathoQuest to continue advancing our NAMs or New Approach Methodologies capabilities by adding this in vitro next generation sequencing platform for quality control testing for biologic drugs. These strategic transactions will help us refine and refocus our portfolio on our core competencies and drive synergistic growth in areas in which we have differentiated scientific expertise, including drugs development testing. acquisitions are expected to be meaningful levers for future operating margin improvement, including the principal drivers of margin expansion for the year.
What went well
- First quarter 2026 financial performance was in line or slightly better than expected across key financial metrics, with revenue of $996 million representing 1.2% reported growth.
- Earnings per share were $2.06, exceeding the prior outlook of a high-teens decline, largely due to better-than-expected operating performance in the Manufacturing and RMS segments.
- The Manufacturing segment grew 2.9% organically with operating margin improving 280 basis points to 25.9%, driven by strong Microbial Solutions growth (Endosafe and Celsis) and cost savings benefits.
- Proposal volume was up in high single digits year-over-year across both global biopharmaceutical and biotech client segments, and up sequentially for three quarters in a row, supporting confidence in continued booking and net book-to-bill trends.
- The company repurchased approximately $200 million in shares under the $1 billion authorization and completed strategic transactions including the K.F. Cambodia acquisition, the PathoQuest acquisition in April, and the CDMO and Cell Solutions divestiture on May 6th.
- Management reaffirmed expectations for at least $100 million in incremental cost savings this year and over $300 million cumulative annualized, with a meaningful second-half operating margin step-up of about 500 basis points half-to-half.
What went wrong
- On an organic basis, first quarter revenue declined 1.5%, in line with the February outlook of a low single-digit organic decline.
- The operating margin was 16.3%, a decrease of 280 basis points year-over-year, driven by lower NHP third-party revenue in RMS, CEO-transition stock compensation timing, and higher DSA NHP sourcing costs and study starts.
- Earnings per share of $2.06 decreased 12% from the first quarter of last year, primarily driven by the lower operating margin.
- RMS revenue declined 5.5% organically to $208 million, with operating margin down 240 basis points to 24.7% due to unfavorable NHP shipment timing and lower small-model volume in North America.
- DSA revenue declined 1.4% organically to $597 million, with operating margin down 290 basis points to 21.0% due to increased study-related direct costs including higher NHP sourcing and study starts.
- Net interest expense outlook for the full year was increased by approximately $8 million to $103 million-$108 million due to short-term borrowings to fund first-quarter stock repurchases, and global biopharma bookings were below last year's elevated level.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Net interest expense | FY2026 | $103M-$108M (increased ~$8M) |
| Unallocated corporate costs | FY2026 | approximately 5.5% of revenue (unchanged) |
| Incremental cost savings | FY2026 | at least $100M above 2025 (unchanged) |
| Operating margin (half-to-half) | FY2026 | high teens H1, +500 bps in H2 (new) |
| Acquisition/divestiture accretion | FY2027 | roughly $0.50-$0.55 vs 2026 (new) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Total revenue | +1.2% reported, -1.5% organic | Organic decline in line with February outlook; reported growth aided by acquisitions and FX |
| Operating margin | -280 bps to 16.3% | Lower RMS NHP third-party revenue, CEO-transition stock comp timing, higher DSA NHP sourcing costs and study starts |
| EPS | -12% to $2.06 | Lower operating margin, partially offset by better Manufacturing and RMS performance |
| DSA revenue | -1.4% organic to $597M | Lower discovery services revenue from prior site consolidation, partially offset by stable safety assessment revenue |
| RMS revenue | -5.5% organic to $208M | Lower sales of small and large models and research model services; NHP shipment timing and lower North America small-model volume |
| Manufacturing revenue | +2.9% organic to $191M | Strong Microbial Solutions growth from Endosafe and Celsis platforms; CDMO client loss reduced segment growth by ~350 bps |
| Unallocated corporate costs | 6.4% vs 5.3% of revenue | Timing of stock compensation expense related to the CEO transition |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| DSA demand environment | Cautiously optimistic, H2 growth expected | Cautiously optimistic; proposals up high single digits, return to growth expected Q3/Q4 | Improving |
| Proposal volume | Improving | Up high single digits YoY in both segments; up sequentially three quarters in a row | Improving |
| Biotech funding | Record Q4 | Better over recent quarters; later-stage stronger, very early stage still sluggish | Improving |
| Strategic framework | Strategic review actions | Refreshed 'Pathway to Purpose' framework; Investor Day planned for September | Improving |
| Portfolio transactions | K.F. and PathoQuest planned | K.F. closed, PathoQuest completed in April, CDMO/Cell Solutions divested May 6th, European discovery sites sale pending May | Improving |
| NHP sourcing costs | Higher, H2 improvement expected | Still elevated H1, big improvement in Q4 from K.F. | Improving |
| Leadership transition | Transition announced | Birgit Girshick CEO this week; Glenn Coleman joined as CFO | Stable |
| Pricing | Stable | Stable; strategic discounting continues | Stable |
Q&A Summary
Can you talk about typical seasonality in the demand cycle and any updates on NAMs demand conversations?
Several businesses see seasonality: DSA proposals and bookings start slow early in the year as budgets are approved and programs reprioritized; biologics testing slows around year-end manufacturing shutdowns; Microbial ramps in Q4 on budget spend. Nothing abnormal this year. On NAMs, they are part of toxicology studies and three decades of animal reduction work; the company continues to add NAMs via organic development, in-licensing, and M&A (e.g., PathoQuest) as an evolution, not a revolution, integrated into DSA revenue rather than a separate business.
What did proposals look like year-over-year and sequentially across client segments?
Proposals were up nicely in high single digits year-over-year in both global biopharmaceutical and biotech segments, giving confidence the booking and net book-to-bill trends will continue. Glenn Coleman added that proposals have come up sequentially for three quarters in a row.
Can you walk through the bridge for the second-half margin step-up and 2027 momentum?
Margins are high teens in H1 with about 500 basis points improvement expected in H2, over half coming from acquisitions and divestitures, plus non-recurring Q1 corporate cost items, cost savings, NHP shipment timing in RMS, and lower DSA costs. For 2027, acquisitions add ~$0.60 (K.F.) and divestitures $0.30 annualized; netting the 2026 part-year amounts of $0.25 and $0.10 implies roughly $0.50-$0.55 of accretion from acquisitions and divestitures in 2027 versus 2026.
What are you seeing in the small and mid-size early biotech segment?
Funding is concentrated in larger, later-stage companies via IPOs that have easier access, where demand is picking up. Smaller or very early-stage biotech remains sluggish with lower funding and more cautious discussions, and areas like the CRADL business unit are not yet at desired demand levels, so the segment is still mixed with room for improvement.
How are conversion rates and decision-making velocity trending, and does pharma's IND focus imply higher preclinical budgets?
Conversion has accelerated versus COVID-era multi-year lead times; modeling shows discussion to proposal to bookings of one to two quarters and another one to two quarters to revenue, sometimes within the same quarter for long-term clients, improving backlog quality. Pharma talks about more programs into IND and the clinic with the same budget, which is not possible, so the company does see a refocus on preclinical and earlier-stage efforts.
What was global pharma bookings performance to start the year?
Global biopharma bookings were below last year's level, which was an incredible booking quarter driven by clients getting new budgets after months of reprioritization. Bookings are viewed as adequate and supportive of clients' stated desire to do more work, with proposals up for the segment, suggesting bookings should rise in coming quarters; the segment is described as quite stable and increasing.
More on Charles River Laboratories International, Inc.
Reported 2026-05-07 · figures from the Charles River Laboratories International, Inc. Q1 2026 earnings call.
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