Key financial results
- Revenue: Third quarter revenue increased 4.7% to the highest level since the second quarter of 2023, exceeding prior outlook with organic revenue growth of 4.7%.
Third quarter revenue increased 4.7% to the highest level since the second quarter of 2023
- Operating margin: Non-GAAP operating margin increased 330 basis points year-over-year and 250 basis points sequentially to 23%.
The operating margin increased 330 basis points year-over-year and 250 basis points sequentially to 23%
- EPS: Non-GAAP earnings per share of $3.09 increased 27% year-over-year, exceeding the prior outlook due to strong top line performance and a lower tax rate.
Non-GAAP earnings per share of $3.09 increased 27% year-over-year
- Cash flow: Free cash flow was $207 million in the third quarter, an increase of $29 million compared to the prior year period.
Free cash flow was $207 million in the third quarter, an increase of $29 million
- CapEx: Capital expenditures increased to $47 million or approximately 4.8% of revenue in the third quarter from $36 million last year.
CapEx increased to $47 million or approximately 4.8% of revenue in the third quarter
Business segment results
- DSA: DSA revenue growth improved to 5.9% organically in the third quarter, driven by robust demand for safety assessment studies utilizing nonhuman primates and bioanalysis services.
DSA revenue growth improved to 5.9% organically in the third quarter
- DSA: DSA operating margin increased by 140 basis points year-over-year to 26.8% due to improved operating leverage and lower sourcing costs for Cambodia nonhuman primates.
the DSA operating margin increased by 140 basis points to 26.8%
- Manufacturing: Manufacturing revenue rebounded to 7.4% organic growth, driven by both the Microbial Solutions and Biologics Testing businesses.
Manufacturing revenue rebounded to 7.4% organic growth
- Manufacturing: Manufacturing operating margin improved to 38.6%, an increase of 80 basis points sequentially and nearly 1,200 basis points year-over-year.
The manufacturing operating margin improved to 38.6%
- RMS: RMS revenue declined 0.6% organically, with strong growth in China offset by softer demand in North America and lower third-party nonhuman primate sales.
RMS revenue declined 0.6% organically.
- RMS: RMS operating margin declined by 60 basis points year-over-year to 24.4% due to unfavorable geographic mix and lower nonhuman primate revenue.
RMS operating margin declined by 60 basis points year-over-year to 24.4%
Capital allocation
- Leverage: Gross and net leverage improved sequentially to 2.3x at the end of the third quarter due to lower debt levels and improved earnings.
gross and net leverage improved sequentially to 2.3x due primarily to lower debt levels and improved earnings.
- Guidance: Management maintained full year 2026 CapEx expectations at approximately $200 million and free cash flow guidance at $400 million to $420 million.
Industry trends and dynamics
- Demand: The biopharmaceutical demand environment has remained consistent with positive momentum, supported by progress in large biopharmaceutical restructuring and improved funding.
the improving biopharmaceutical demand environment has remained consistent in recent months and continues to show positive momentum.
- Bookings: Net bookings for DSA increased 32% year-over-year to $652 million, resulting in a net book-to-bill of 1.09x.
Net bookings increased 32% year-over-year to $652 million as we anniversaried the softer bookings
- Backlog: DSA backlog increased year-over-year and sequentially to $2.03 billion.
increases in the DSA backlog to $2.03 billion.
Competitive landscape
- NHP Supply: Charles River maintains a competitive advantage in nonhuman primate supply, covering roughly 80% of estimated usage through company-owned farms.
roughly 80% of our estimated usage is covered by our own supply from our own farms.
- Partnerships: The company extended its relationship with a top 10 biopharmaceutical company to serve as a primary strategic partner for safety assessment services.
we recently extended our relationship with a top 10 biopharmaceutical company to serve as a primary strategic partner for safety assessment services.
Macroeconomic environment
- Monitoring: Management continues to monitor inflation, oil prices, interest rates, macroeconomic conditions, and biotech funding trends for any signs of disruption.
We are monitoring developments related to inflation, oil prices, interest rates and the general macroeconomic environment as well as biotech funding trends
Growth opportunities and strategies
- Transformation: The Create the Future transformation program is expected to generate over $300 million in cumulative savings over the next 4 years.
expected to generate over $300 million in cumulative savings over the next 4 years
- Modernization: The company launched Apollo Orchestrate and implemented a fully automated manufacturing suite for Endosafe endotoxin cartridge technology to improve efficiency and increase capacity.
Financial guidance and outlook
- Revenue guidance: Management raised full year 2026 organic revenue growth guidance by 100 basis points to at least 1.5%.
raising our full year revenue guidance by 100 basis points to organic growth above 1.5%
- EPS guidance: Full year non-GAAP earnings per share guidance was raised by $0.15 at the midpoint to a range of $11.35 to $11.55.
- Interest expense: Full year net interest expense is expected at the upper end of the previous range of $103 million to $108 million.
net interest expense outlook is expected to be at the upper end of our previous guidance range of $103 million to $108 million
- Tax rate: The full year non-GAAP tax rate is expected to be approximately 23%, at the lower end of the prior guidance range.
expect a non-GAAP tax rate of approximately 23%, which is at the lower end of our prior guidance range
Q3 2026 results
| Metric | Result | Change |
|---|---|---|
| Revenue | $596 million | 4.7% organic growth |
| Non-GAAP earnings per share | $3.09 | 27.2% year-over-year |
| DSA segment revenue | $596 million | 5.9% organic growth |
| Manufacturing segment revenue | $179 million | 7.4% organic growth |
| RMS segment revenue | $208 million | 0.6% organic decline |
| Non-GAAP operating margin | 23% | up 330 basis points year-over-year |
How management sounded
Balanced (+30 on our -100 to +100 scale). Management expressed pleased sentiment over solid revenue and EPS beats, accelerated growth, and improving biopharmaceutical demand trends. Management sounded more upbeat than on 16% of the 302 calls we cover; most companies sound positive on their own calls, so the comparison says more than the label.
Read the analyst Q&A summary and guidance and outlook for this call.
What to watch before the next call
- Progression of pricing power recovery in the DSA segment through the second half of 2027.
- Macroeconomic developments including inflation, oil prices, interest rates, and biotech funding trends.
- Recovery of academic and government demand within the Research Models and Services segment.
Earlier calls
- Q2 2026 (Aug 5, 2026), tone Balanced: Charles River Laboratories reported second quarter 2026 organic revenue growth of 0.1% and raised its full-year organic revenue and earnings guidance.
