Charles River Labs looks to trim the fat

December 15, 2010 By MassDevice staff Leave a Comment

Charles River Laboratories International Inc. (NYSE:CRL) launched a cost-cutting plan to raise value for its shareholders.

The Wilmington, Mass.-based contract research organization is planning to sell off certain clinical assets and raised its guidance for 2010.

Major investors in the company last week began pressuring the company to explore a sale or pursue strategic avenues for certain assets, according to the The Wall Street Journal.

Relational Investors LLC is leading the effort to push the company into an asset sale after a proposed merger with China-based WuXi PharmaTech (Cayman) Inc. (NYSE:WX) failed, according to the newspaper. The investment firm, which was co-founded by activist investor Ralph Whitworth, and the California State Teachers’ Retirement System have a combined 6.1 percent in the company. The backers banded together to pressure the company into a sale. Before CRO scrapped the merger, Relational had warned the company that its directors could be forced off the board by shareholders angered at the deal.

CRL officials said they plan to "aggressively manage [its] cost structure and drive operating efficiencies" in a statement released yesterday. The assets that could be up for grabs include certain under-performing preclinical services assets, including the company’s early-stage clinic and its China preclinical facility. The plans include the treatment of the company’s Phase I clinical business as a discontinued operation for accounting purposes, which means the unit would be excluded from sales and earnings per share on a continuing basis.

The actions are expected to eliminate approximately $10 million in operating losses from the two facilities in 2011 on a non-GAAP basis, the company said. The updated 2010 earnings outlook, excluding one-time items, is now between $1.88 and $1.93 a share. The company previously forecast of $1.85 to $1.90 a share. It expects revenues of $1.12 billion to $1.13 billion, down from its previous guidance of $1.14 billion to $1.15 billion, and 2011 earnings from continuing operations, excluding one-time items, of between $2.20 and $2.40 a share.

In August, the company took out a $750 million credit line to support a $300 million share repurchasing plan designed to boost the value of its stock. CRL plans to complete the initial $500 million of the buyback by the end of 2011, the company said.

Charles River Labs slipped into the red during the fiscal quarter ending Sept. 30. The company posted a net loss of $24.9 million, or 40 cents per diluted share, on sales of $276.1 million during the three months ended Sept. 25. That compares with profits of $37.3 million, or 57 cents per diluted share, on sales of $297.5 million during the same period last year.

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