UPDATE 2-Charles River Q4 profit tops Street view

Mon Feb 8, 2010 6:04pm EST

* Q4 EPS $0.49 vs. est $0.44

* Q4 revenue $295.4 mln vs. est $291.2 mln

* Sees 2010 EPS $2.20-$2.40 vs. est $2.37 (Adds analyst comments, details, background)

By Esha Dey

BANGALORE, Feb 8 (Reuters) - Clinical research company Charles River Laboratories International Inc (CRL.N) posted a higher-than-expected quarterly profit, helped by its cost control measures and an 11 percent rise in its research models and services segment.

For 2010, the company expects to earn $2.20 to $2.40 share as the market for outsourced preclinical services begins to improve in the second quarter and drugmakers re-emphasize developing new drugs.

Analysts on average were expecting the preclinical drug-testing services firm to earn $2.37 a share in 2010, according to Thomson Reuters I/B/E/S.

"Based on strong preclinical bookings for the first quarter of 2010 and early positive indicators for the second quarter, we believe we are starting to see our clients reinvigorate their late discovery and early development efforts," Chief Executive James Foster said in a statement.

Last month, the company had said it would suspend operations at one of its preclinical services site by the middle of 2010 citing excess capacity due to continued softness in preclinical market demand.

Contract research organizations, which did brisk business in the early days of the economic slowdown as developers were looking at cheaper outsourcing options to cut costs, were hit hard when a full-blown recession forced many smaller drugmakers to abandon some research completely.

Charles River, which is heavily focused on preclinical and early-stage research, was one of the worst affected among its peers but the company is widely expected to see some signs of stabilization in 2010.

"A lot of the overflow that they are seeing is coming from pharmaceutical clients and not small biotechnology firms," Jefferies and Co analyst David Windley said.

Q4 BEAT

For the fourth quarter, the company posted a net income of $17.6 million, or 27 cents a share, compared with a net loss of $663.2 million, or $9.93 a share, in the year-ago quarter.

The prior-year quarter included a non-cash goodwill impairment of $10.43 a share.

Excluding items, it earned 49 cents a share for the latest fourth quarter.

Sales for the quarter fell 5 percent to $295.4 million, hurt by a 21 percent drop in preclinical services revenue.

Analysts on average had expected earnings of 44 cents a share, before special items, on revenue of $291.2 million.

"Capacity utilizations were better and margins did not fall as far as they expected," Jefferies' Windley said.

Excluding special items, operating margin for the research models and services segment was 30 percent for the quarter.

Shares of the company closed at $35.69 Monday on the New York Stock Exchange. (Reporting by Esha Dey in Bangalore; Editing by Gopakumar Warrier, Anne Pallivathuckal)

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