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IDEXX Laboratories (IDXX) Q2 Earnings & Revenues Top, View Up

IDEXX Laboratories, Inc. IDXX recorded second-quarter 2017 earnings per share (EPS) of 95 cents, up 28% (up 30% at constant exchange rate or CER) year over year on a reported basis. Further, the reported figure surpassed the Zacks Consensus Estimate of 85 cents.

Strong top-line growth in the second quarter drove earnings.

Revenues in Detail

IDEXX’s second-quarter 2017 revenues rose 9% year over year (10% on organic basis) to $509.0 million, beating the Zacks Consensus Estimate of $501.0 million.

The year-over-year increase was driven by strong global gains in Companion Animal Group (CAG) Diagnostics recurring revenues, including double-digit organic revenue gains across consumable and reference lab as well as strong acceptance of rapid assays and veterinary software, services and diagnostic imaging systems.

IDEXX Laboratories, Inc. Price, Consensus and EPS Surprise

 

Segmental Analysis

IDEXX derives revenues from four operating segments: CAG; Water; Livestock, Poultry and Dairy (LPD), and Other.

In the second quarter, CAG revenues rose 9.9% (10.9% organically) year over year to $439.9 million. The Water segment’s revenues were up 5.7% from the prior-year quarter (7.2% organically) to $29.4 million. LPD revenues, in the meanwhile, increased 2.1% (up 3.5% organically) to $33.6 million. Revenues at the Other segment rose 6.3% (up 6.4% organically) to $6 million.

Margins

Gross profit increased 12.4% to $292.7 million in the reported quarter. Gross margin expanded 170 basis points (bps) to 57.5% despite a 4.9% rise in cost of revenue to $216.2 million.

Sales and marketing expenses rose 14.3% to $87.7 million, while general and administrative expenses rose 2.2% to $55.5 million. Research and development expenses increased 5.9% to $26.9 million. Overall, operating margin in the quarter improved 180 bps to 24.1%.

Financial Position

IDEXX exited the second quarter of 2017 with cash and cash equivalents of $165.9 million, up from $160.4 million at the end of the first quarter. Year-to-date net cash provided by operating activities was $141.5 million, compared with $137.9 million in the year-ago period.

2017 Guidance

IDEXX raised its 2017 revenue outlook by $17.5 million at the midpoint to the range of $1,945--$1,965 million from the earlier range of $1,925--$1,950 million, reflecting organic revenue growth expectations between 10.0% and 11.0%. The Zacks Consensus Estimate for 2017 revenues is pegged at $1.94 billion, near the low end of the guided range.

Management also raised its EPS guidance to $3.12–$3.22 per share from the earlier range of $$2.95–$3.11, supported by continued operating margin expansion aligned with its long-term goals. The updated outlook represents EPS growth of 28%–32% on a reported basis. The Zacks Consensus Estimate for 2017 EPS is pegged at $3.05, below the guided range.

Our Take

IDEXX exited the second quarter on a solid note, with both earnings and revenues beating the Zacks Consensus Estimate.Solid organic revenue growth buoys optimism. The company’s raised EPS guidance for 2017 is also encouraging.

The stellar quarterly performance was driven by the company’s companion animal business. The companion animal market fundamentals remain solid with tremendous global runway for growth. Management’s unique innovation-based, multi-modality global strategy, enabled by enhanced commercial capability, accelerated recurring CAG Diagnostics revenue growth. Moreover, the strong top-line growth in this quarter was driven by considerable contributions from the rest of the business segments.

However, foreign currency fluctuations are expected to continue to hurt the company’s operating results, although lower than the extent expected earlier.

Zacks Rank & Other Key Picks

IDEXX currently has a Zacks Rank #2 (Buy). Other top-ranked medical stocks are Mesa Laboratories, Inc. MLAB, INSYS Therapeutics, Inc. INSY and Align Technology, Inc. ALGN. Notably, INSYS Therapeutics and Align Technology sport a Zacks Rank #1 (Strong Buy), while Mesa Laboratories carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

INSYS Therapeutics has a long-term expected earnings growth rate of 20%. The stock has gained around 4.7% over the last three months.

Align Technology has an expected long-term adjusted earnings growth of almost 24.1%. The stock has added roughly 24.7% over the last three months.

Mesa Laboratories has a positive earnings surprise of 2.8% for the last four quarters. The stock has added roughly 19.4% over the last six months.

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