Charles River Laboratories is blaming flat demand by smaller biopharmas, foreign currency fluctuations, and the addition last year of a 53rd week for fourth quarter dips in profits and sales. But the contract research organization says it expects a rebound in sales and earnings next year based on gains in market share among biopharmaceutical companies and academic institutions.

The company finished the fourth quarter of last year with net income from continuing operations of $22.7 million or 47 cents per diluted share, down 16% from $27.1 million or 55 cents per diluted share for the final three months of 2011. Net sales from continuing operations fell 3.7% year-over-year to $280.1 million in Q4, down 3.7% from $291 million in Q4 2011.

Charles River cited non-GAAP net income from continuing operations, which fell 7.5% in Q4 over a year earlier, to $31 million from $33.6 million. The slump in operating income also reduced fourth-quarter diluted earnings per share on a non-GAAP basis to 64 cents, down 7.2% from 69 cents per share in Q4 2011.

“Our fourth-quarter operating results were in line with our expectations, concluding a year in which we made significant progress on our goal to position ourselves as the partner of choice for early-stage drug research and development support,” James C. Foster, Charles River’s chairman, president and CEO, said in a statement.

For all of 2012, net income from continuing operations fell 11.6% from 2011, to $102.1 million or $2.10 per diluted share, from $115.5 million or $2.24 per diluted share. Net sales from continuing operations dipped 1.1%, to $1.13 billion from $1.14 billion the previous year. Charles River highlighted non-GAAP net income from continuing operations for 2012 of $132.5 million or $2.74 per diluted share, nearly 1% above 2011’s $131.3 million or $2.56 per diluted share.

Lower sales of smaller research models by cash-strapped smaller biopharmas helped shrink results at Charles River’s Research Models and Services (RMS). During Q4 2012, RMS’ GAAP operating margin was 25.6% compared to 27.6% for the previous fourth quarter, while net sales fell 5.8% to $171.8 million from $182.4 million in the final three months of 2011. The company said the lack of a 53rd week cut sales growth by 4.1% and foreign currency translation, another 1.4%. Excluding both factors, the adjusted RMS Q4 sales decline was 0.3% from 2011.

For full-year 2012, RMS’ GAAP operating margin was all but flat at 29.1% in 2012, compared to 29.2% a year earlier. The company cited non-GAAP operating margin of 30.7%, up from 30.4% in 2011. RMS net sales inched down 1.5%, to $695.1 million from $705.4 million the previous year. As with quarterly numbers, having no 53rd week and lower currency exchange rates reduced sales growth—by 1.1% and 2.5%, respectively, according to Charles River.

Preclinical services were affected by a one-time nonincome based tax adjustment that benefited the fourth quarter of 2011. The adjustment shrunk the non-GAAP margin to 12.1% from 13.0%.

On a brighter note, preclinical services sales GAAP operating margin increased to 8.0% in the fourth quarter of 2012 from 3.8% in the year-ago quarter. Also, according to Charles River, sales jumped for Charles River’s Endotoxin and Microbial Detection (EMD) business, helped in part by the company’s acquisition of Accugenix.

“Our value proposition is resonating with biopharmaceutical companies and academic institutions, who are increasingly choosing to partner with Charles River as evidenced by the market share gains we achieved in 2012 through strategic client relationships,” Foster said in the statement.

For 2013, Charles River has issued guidance to investors forecasting 4% to 6% sales growth, and non-GAAP earnings per share of between $2.80 and $2.90. 

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