Charles River Labs Q3 2025 slides: Revenue dips as strategic overhaul takes shape

Charles River Laboratories (NYSE:CRL) presented its third-quarter 2025 results on November 5, revealing a slight revenue decline alongside a comprehensive strategic overhaul aimed at refocusing the company’s portfolio and improving operational efficiency. Despite beating analyst expectations, the company’s shares fell sharply following the presentation.

Quarterly Performance Highlights

Charles River reported third-quarter revenue of $1,004.9 million, representing a year-over-year decline of 0.5% on a reported basis and 1.6% organically. This performance slightly exceeded the company’s previous guidance, with the Research Models and Services (RMS) segment showing growth while the Discovery and Safety Assessment (DSA) and Manufacturing segments experienced declines.

As shown in the following revenue breakdown:

The company’s non-GAAP operating margin was 19.7% in Q3 2025, down 20 basis points from 19.9% in the same period last year. However, the GAAP operating margin improved by 170 basis points to 13.3%. The anticipated non-GAAP margin decline primarily reflected lower sales volume in DSA and reduced commercial CDMO revenue in the Manufacturing segment.

Earnings per share metrics showed mixed results, with non-GAAP EPS of $2.43 exceeding analyst expectations of $2.34 but still representing a 6.2% decline from the prior year. GAAP EPS fell more significantly, down 17.3% to $1.10. The company noted that tax changes were a significant headwind, creating a $0.24 per share negative impact year-over-year.

Strategic Initiatives

A major focus of the presentation was Charles River’s comprehensive strategic review and resulting initiatives. The company’s board has endorsed a strategic direction centered on four key pillars: strengthening the scientific portfolio, divesting underperforming assets, maximizing financial performance, and maintaining disciplined capital deployment.

The company plans to divest certain underperforming or non-core businesses representing approximately 7% of estimated 2025 revenue. These divestitures are expected to result in non-GAAP earnings per share accretion of at least $0.30 on an annualized basis once completed, with a target to finalize these transactions by mid-2026.

Cost efficiency remains a priority, with the company implementing restructuring initiatives expected to generate approximately $225 million in cumulative, annualized cost savings by 2026, representing more than 5% of its cost structure. Additional efficiency initiatives are projected to deliver incremental net cost savings of approximately $70 million annually, fully realized in 2026.

In a significant move for shareholders, the board approved a new $1.0 billion stock repurchase authorization in October, replacing the previous authorization under which the company had repurchased $450.7 million in common stock since August 2024.

Market Context and Demand Trends

Charles River highlighted emerging signs of market stabilization, noting that many global biopharma clients appear to have progressed through their restructuring efforts. The biotech funding environment showed increasing signs of improvement throughout Q3 2025, which the company views as positive signals that the industry may be on a path toward recovery.

The company reported that third-quarter business trends were consistent with those described in August, with RMS performance benefiting from favorable timing of non-human primate shipments. DSA revenue declined sequentially as bookings returned to recent historical levels, while Manufacturing revenue declined primarily due to the completion of work for a commercial CDMO client.

Forward-Looking Statements

Based on its Q3 performance, Charles River updated its full-year 2025 guidance. The company now expects reported revenue growth of -1.5% to -0.5%, an improvement from the previous range of -2.5% to -0.5%. Organic revenue growth is projected at -2.5% to -1.5%, also an improvement from the prior forecast of -3.0% to -1.0%.

The company raised the lower end of its non-GAAP EPS guidance to $10.10-$10.30, compared to the previous range of $9.90-$10.30. For the full year, Charles River continues to expect operating margin to be flat to a 30-basis-point decline, unchanged from its prior outlook.

Market Reaction

Despite the earnings beat and strategic initiatives announced, Charles River’s stock fell sharply following the presentation. Shares dropped 6.66% in pre-market trading to $166, and continued declining during the regular session, falling 8.15% to $163.36.

The negative market reaction suggests investors may be concerned about the ongoing organic revenue decline and the execution risks associated with the planned divestitures and restructuring initiatives. With the stock trading well below its 52-week high of $230.02, investors appear to be taking a cautious approach despite management’s optimism about market stabilization and future growth opportunities.

The company’s strategic overhaul comes at a critical time as it navigates a challenging biopharma landscape, with the effectiveness of these initiatives likely to determine whether Charles River can return to growth in 2026 and beyond.

Full presentation:

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