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IDEXX Laboratories (IDXX) Q3 Earnings Beat, Revenues Miss

IDEXX Laboratories, Inc. IDXX recorded third-quarter 2017 earnings per share (EPS) of 79 cents, up 27% (same at constant exchange rate, or CER) year over year on a reported basis. Further, the reported figure surpassed the Zacks Consensus Estimate of 75 cents.

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

Revenues in Detail

IDEXX’s third-quarter 2017 revenues rose 9.7% year over year (up 9% on organic basis) to $491.9 million. However, it missed the Zacks Consensus Estimate of $494 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 third quarter, CAG revenues rose 10.7% (up 9.6% organically) year over year to $426.7 million. The Water segment’s revenues were up 11.1% from the prior-year quarter (up 10.3% organically) to $31 million. LPD revenues, in the meanwhile, declined 4.7% (down 6.5% organically) to $28.4 million. Revenues at the Other segment rose 9.3% (up 9.1% organically) to $5.86 million.

Margins

Gross profit increased 11.1% to $274 million in the reported quarter. Gross margin expanded 70 basis points (bps) to 55.7% despite an 8.1% rise in cost of revenues to $217.9 million.

Sales and marketing expenses rose 11.1% to $88.8 million, while general and administrative expenses increased 8.7% to $57.2 million. Research and development expenses increased 7.4% to $27.6 million. Overall, operating margin in the quarter improved 70 bps to 20.4%.

Financial Position

IDEXX exited the third quarter of 2017 with cash and cash equivalents of $169 million, up from $165.9 million at the end of the second quarter. Year-to-date net cash provided by operating activities was $252.2 million, compared with $238.2 million in the year-ago period.

2017 Guidance

IDEXX narrowed its 2017 revenue outlook to $1,950-$1,960 million from the previously provided range of $1,945-$1,965 million, reflecting organic revenue growth expectations between 9.5% and 10%. The Zacks Consensus Estimate for 2017 revenues is pegged at $1.95 billion, pegged at the lower end of  the guided range.

Management also raised its EPS guidance to $3.22-$3.26 from the earlier $3.12–$3.22, supported by continued operating margin expansion aligned with its long-term goals. The updated outlook represents EPS growth of 32-34% on a reported basis. The Zacks Consensus Estimate for 2017 EPS is pegged at $3.17, below the guided range.

Our Take

IDEXX exited the third quarter on a mixed note, with earnings beating and revenues missing the Zacks Consensus Estimate. However, solid year-over year growth in organic revenues buoys optimism. The company’s raised EPS guidance for 2017 is also encouraging.

The stellar quarterly performance was driven by strong sales within the company’s companion animal business. The companion animal market fundamentals remain solid with tremendous global runway for growth. Management’s 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 stocks in the broader medical sector are PetMed Express, Inc. PETS, Thermo Fisher Scientific Inc. TMO and Intuitive Surgical, Inc. ISRG. Notably, PetMed sports a Zacks Rank #1 (Strong Buy), while Thermo Fisher Scientific and Intuitive Surgical carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported EPS of 43 cents for the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Thermo Fisher Scientific reported adjusted earnings per share of $2.31 in the third quarter of 2017, up 13.8% year over year. Also, the company’s revenues grew 14% year over year to $5.12 billion.

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% on a year-over-year basis. Further, revenues increased 18% year over year to $806.1 million.

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