What Management Said
Read the full Q2 2026 transcript ↗They will comment on our results for the second quarter of 2026, as well as our financial guidance. During this 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. I'm pleased to report that we delivered on our second quarter financial targets, exceeding our prior outlook for the quarter, and that we are raising our financial guidance for the year. First, we were encouraged that the biopharmaceutical demand environment continued to strengthen in the second quarter, particularly in the DSA segment.
We firmly believe these trends positioned us well to drive higher organic growth during the second half of the year. To support this growth, we recently embarked on an expansion to add bioanalytical laboratory capacity at Heriot-Watt University's Research Park in Scotland. I mentioned, we believe the biopharma demand is continuing to sustainably improve. Revenue from small and mid-sized biotechs was essentially flat organically in the second quarter, which is an improvement from declines in recent quarters.
A reminder, there is a natural lag of several quarters between studies are booked into backlog and work their way through to revenue. Global biopharmaceutical clients were also a significant contributor to the improving DSA demand KPIs in the second quarter. As I mentioned last quarter, most of our global biopharma clients have progressed through restructuring and pipeline reprioritization activities over the last several years. Demand trends have been improving gradually over the last 18 months with continued evidence this year.
What went well
- Charles River returned to organic revenue growth of 0.1% (revenue of $1.00 billion), its first organic improvement since the third quarter of 2023, beating a prior outlook of a low-single-digit decline.
- DSA demand strengthened further: net bookings rose 12.6% sequentially to $701 million, the DSA backlog grew to $1.97 billion, and the net book-to-bill reached 1.19x, the third straight quarter above 1x and the highest in nearly four years.
- Non-GAAP operating margin jumped 420 basis points sequentially to 20.5% and non-GAAP EPS of $3.02 rose 47% sequentially, both aided by divestitures and easing first-quarter headwinds.
- The Manufacturing segment was strong, with operating margin up 500 basis points year over year to 37.8% (CDMO divestiture benefit) and high-single-digit organic growth in Microbial Solutions endotoxin testing.
- Biopharma demand is improving across both small/mid biotech (backed by nearly $100 billion of trailing-12-month funding) and global biopharma, supported by new collaborations including Eli Lilly's TuneLab AI drug-discovery platform and PathoQuest/Arovella NGS work.
- The company raised full-year guidance (organic revenue to flat-to-+1%, non-GAAP EPS to $11.15-$11.45, free cash flow to $400-$420 million) and repurchased $100 million of stock in the quarter ($300 million year to date), ending at 2.5x net leverage.
What went wrong
- On a GAAP basis, the company reported a net loss of $1.5 million, or $(0.03) per share, versus $1.06 of GAAP EPS a year earlier, driven principally by a loss related to the CDMO and Cell Solutions divestitures.
- Non-GAAP diluted EPS of $3.02 was down 3.2% from $3.12 a year ago despite the strong sequential improvement.
- RMS revenue declined 1.4% organically as North American small-model volumes and academic/government demand stayed weak amid flat NIH budgets and slower grant processing; full-year RMS is still expected to decline low-to-mid single digits.
- DSA operating margin fell 180 basis points year over year to 25.6% on higher study-related direct costs (though up 460 bps sequentially).
- Unallocated corporate costs rose to 7.2% of revenue, and the full-year corporate-cost outlook was raised to ~6.0% from ~5.5% on higher performance-based compensation.
- A higher full-year non-GAAP tax rate (23%-24%, up ~100 bps on proposed Mauritius tax legislation) is a roughly $0.20 EPS headwind that offsets a $0.19 non-recurring deferred-compensation gain.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Reported revenue growth | FY2026 | -2.5% to -3.5% (driven by completed divestitures) |
| Organic revenue growth | FY2026 | Flat to +1% (raised ~150 bps); DSA low single-digit growth, Manufacturing low-to-mid single digits, RMS unchanged (low-to-mid single-digit decline) |
| Operating margin expansion | FY2026 | ~120-150 bps year over year; H2 at least 500 bps better than H1, ~50% from completed portfolio actions |
| Non-GAAP diluted EPS | FY2026 | $11.15-$11.45 (+8%-11% YoY; +$0.25 at midpoint, all operational) |
| Free cash flow | FY2026 | $400M-$420M (raised on higher earnings) |
| Non-GAAP tax rate | FY2026 | 23%-24% (+~100 bps, mainly proposed Mauritius tax legislation) |
| Q3 outlook | Q3 2026 | Reported revenue -4% to -6%, organic +1% to +3%; operating margin +~200 bps sequentially; non-GAAP EPS $2.90-$3.00 (~+20% YoY) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Total revenue | $1.00B (organic +0.1%) | First organic growth since Q3 2023, driven by better-than-expected DSA and Manufacturing; reported down modestly on divestitures. |
| GAAP EPS | $(0.03) (vs $1.06) | Net loss of $1.5 million principally from a loss on the CDMO and Cell Solutions divestitures; GAAP operating margin 11.9% (up from 9.7%). |
| Non-GAAP EPS | $3.02 (-3.2% YoY, +47% sequentially) | Over half of the outperformance from better top line, the rest from favorable non-operating items. |
| DSA segment | Revenue $607M (-1.9% reported, +0.2% organic) | First DSA organic growth since Q3 2023; operating margin 25.6% (-180 bps YoY on higher study costs, +460 bps sequentially). |
| RMS segment | Revenue $209M (-1.4% organic) | Lower North American small-model volumes and research model services, partially offset by strong China demand; operating margin 24.5% (-80 bps). |
| Manufacturing segment | Revenue $188M (+1.3% organic) | High-single-digit Microbial Solutions growth; operating margin 37.8% (+500 bps) on the CDMO divestiture; mid-single-digit organic ex-CDMO. |
| DSA net bookings / book-to-bill | $701M (+12.6% seq); 1.19x | Broad-based across global biopharma and biotech; backlog rose to $1.97 billion, highest bookings/book-to-bill in nearly four years. |
| Free cash flow / leverage | $149M; net leverage 2.5x | Down $21 million on working-capital timing; balance sheet supports continued M&A and buybacks. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Biopharma demand recovery | Weak, declining demand | Third consecutive DSA book-to-bill above 1x with rising proposals; biotech funding near $100 billion TTM (near pandemic peaks), IPO activity up, and global biopharma booking more work after multi-year restructuring; a several-quarter lag means benefits accelerate in H2 2026 and into 2027. | — |
| Pathway of Purpose / portfolio refinement | Broad portfolio | Completed divestitures of certain European discovery sites, CDMO, and Cell Solutions to refocus on core regulated testing, driving margin and focus benefits; management signaled continued portfolio review plus M&A appetite (nothing imminent on further divestitures). | — |
| NHP supply advantage | Industry supply risk | Ownership of Mauritius and Cambodian (K.F.) NHP farms gives control over quality, timing, and capacity, a competitive differentiator; lower NHP sourcing costs begin benefiting DSA margin in Q3 with a larger Q4 impact as animals move onto studies. | — |
| AI in drug discovery | Emerging | Management believes AI-driven discovery (e.g., the Lilly TuneLab collaboration) will increase the number of molecules advancing into validation and regulated safety assessment, a multi-year tailwind; Charles River is also deploying internal AI, including AI-enabled digital pathology targeting a one-week cut to timelines. | — |
| China | Watching competition | Strong research-models business in China; competition is adding capability mainly in early-stage chemistry/biology (which CRL exited), with limited migration of Western regulated safety work to China so far; management sees Western pricing for China-for-West CROs moderating but still lower. | — |
| Academic/government weakness | Growth segment historically | About 10% of the company (mostly RMS); demand stable but not growing amid flat NIH budgets, multi-year grants, and slower processing, holding back North American research models; CRADL subdued on modest (2%) new-company formation. | — |
| NAMs and modernization | Early NAMs focus | A scientific advisory board and new chief scientific officer lead NAMs integration into safety assessment workflows (internal development plus licensing/partnering), not a standalone business; deeper detail promised at the September 24 Investor Day. | — |
Q&A Summary
Kallum Titchmarsh (Morgan Stanley) asked how AI-driven drug discovery affects the preclinical pipeline and when it shows up in IND-enabling studies.
CEO Birgit Girshick said AI should increase molecule design productivity and push more programs into validation and regulated safety assessment (Charles River's core), a tailwind that will ramp over the next year or two but is hard to time precisely; AI-native discovery firms already run more programs than typical biotechs, and CRL is also deploying internal AI to differentiate and gain efficiency.
Kallum Titchmarsh (Morgan Stanley) asked whether the portfolio is now the right shape and about M&A/divestiture appetite.
Girshick said divestitures are delivering financial and focus benefits with nothing imminent on further sales, but CRL will keep refining the portfolio and has a healthy M&A roadmap; Glenn Coleman added the balance sheet (2.5x leverage, raised free cash flow, ample revolver capacity) fully supports the acquisition strategy.
Dave Windley (Jefferies) asked about demand by study type and CRL's NHP supply/capacity given industry shortages.
Girshick described balanced pre-IND and post-IND demand plus strength in complex NHP studies, and said owning the Mauritius and Cambodian farms lets CRL control quality, timing, and capacity (breeding more, accelerating or holding shipments) while third-party contracts ramp down, leaving it in a strong position to gain share; Coleman confirmed minimal Q3 NHP cost benefit but a meaningful Q4 DSA margin move.
Casey Woodring (JPMorgan) asked how much the NHP security-of-supply advantage is lifting win rates and share, and about academic/government and CRADL.
Girshick said share is hard to quantify (many private competitors) but capture rates ticked up, and owning NHP supply deepens preferred partnerships; academic/government (about 10% of the company) is stable but not growing on flat NIH budgets and multi-year grants, and CRADL remains subdued on modest new-company formation.
Ryan Halsted (RBC) asked for more color on the visibility behind the guidance raise and about NAMs partnerships.
Coleman said confidence stems from strong Q2 bookings and lead indicators (book-to-bill, proposals, capture rate), with most benefit landing in 2027; Girshick said NAMs will be integrated into safety-assessment workflows via internal development plus licensing/partnering (not a standalone business), with a deeper dive at the September Investor Day.
Josh Waldman (Cleveland Research) asked how the moving pieces set up margins into Q4 and 2027.
Girshick and Coleman declined to guide 2027 but flagged at least 500 bps of H2 margin improvement (heavily Q4-weighted from NHP cost benefits), cautioning against extrapolating the Q4 run rate, while noting divestitures and the Cambodia acquisition should provide a 2027 margin tailwind.
More on Charles River Laboratories International, Inc.
Reported 2026-08-05 · figures from the Charles River Laboratories International, Inc. Q2 2026 earnings call.
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