Charles River Placates Investors With More Cutbacks

Dec.16.10 | About: Charles River (CRL)

By Michael Fitzhugh

Clinical research giant Charles River (NYSE:CRL) says it will further slash operating costs and unload money-losing assets to placate shareholders who claim the company underperforms its peers and manages its assets badly.

Both Relational Investors and the California State Teachers Retirement System have met with Charles River’s board to push the idea of selling the company, either as a whole or in parts, to generate a better return on their investments.

Predicting better times ahead, company CEO, president and chair James Foster raised the business’ 2011 guidance and promised to bolster shareholder value by completing a $500 million stock repurchase by the end of 2011.

“Over the last two years, Charles River has taken decisive action to address the accelerating changes in the biopharmaceutical industry,” Foster says. “We have aligned our infrastructure to current demand, rigorously managed operating costs and increased our stock repurchases, all of which were implemented to drive shareholder value.”

Since abandoning a planned $1.6 billion acquisition of the Chinese drug research and development outsourcer WuXi PharmaTech (NYSE:WX) in July, Charles River has pared back discretionary spending and cut close to 600 jobs as it suspended pre-clinical drug development operations in Maryland, Michigan, and Quebec.

The company says it expects that cuts made in 2010 will save it $40 million, while divesting from under-performing pre-clinical services in the United States and China will eliminate $10 million in combined operating losses next year.

The company is predicting non-GAAP earnings per share increasing to a range of $2.20 to $2.40 in 2011. But in 2011 the company expects sales to be approximately flat year-over-year.

Accordingly, much of the earnings improvement will have to be achieved without help from its customers, many of whom have allocated less money to the research and development budgets from which outsourcers like Charles River are paid.