IDEXX (IDXX) Up 5.8% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for IDEXX Laboratories, Inc. IDXX. Shares have added about 5.8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

IDEXX recorded third-quarter 2016 earnings per share (EPS) of $0.62, up 29% year over year on a reported basis. The figure also handily beat the Zacks Consensus Estimate of $0.59.

On a constant currency adjusted basis, this figure improved 22% year over year after accounting for an adverse $0.04 per share impact related to net changes in foreign exchange and a $0.06 per share of software impairment charge in the prior-year period.

Strong top-line growth and operating margin performance in the third quarter as well as consistent share repurchases drove the upside in EPS.

Revenues in Detail

IDEXX’s third-quarter 2016 revenues improved 10.3% year over year to $448.3 million but missed the Zacks Consensus Estimate of $449 million by a whisker.

Organic revenue growth was 10%, within the company’s expected band, driven by 12% organic growth in CAG recurring revenues and continued strong premium instrument placements, including benefits from the launch of SediVue, which contributed about 2% to overall revenue growth.

Region-wise, in the reported quarter, IDEXX witnessed a 10% improvement in the U.S. amounting to revenues of $277 million supported by strong growth in premium instrument placements, including benefits from the launch of SediVue. U.S. CAG recurring diagnostic revenues grew 9% organically, net of about 1% of growth headwind related to pure equivalent days in the quarter.

In the international market, the company's sales increased 11% year over year to $171 million (up 11% on an organic basis). CAG Diagnostics’ recurring revenue growth was 17% organically in international markets. International consumable revenue grew by more than 20% on the expansion of the Catalyst platform globally.

Segmental Analysis

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

In the third quarter, revenues improved 13.8% to $385.3 million, up 12% organically at CAG, driven by strong CAG recurring diagnostic revenue gains across the U.S. and international regions, and continued high global growth in instrument sales. The Water segment’s revenues grew 8.8% organically to $27.9 million, primarily boosted by double-digit gains in international markets.

Third-quarter LPD revenues, however, decreased 2.5% organically to $29.8 million as strong growth in China and Brazil was offset by lower levels of testing related to European bovine disease eradication programs and reduced health herd screening in Asia. Meanwhile, revenues in the Other segment declined 9.2% to $5.6 million.

Margins

Gross profit increased 10% to $246.7 million in the reported quarter. However, gross margin contracted 15 basis points (bps) to 55%.

Sales and marketing expenses increased 9.4% to $79.9 million while general and administrative expenses rose 13.9% to $52.6 million. Research and development expenses grew 3.3% to $25.7 million. Operating margin in the quarter improved 2 bps to 19.7%.

Financial Position

IDEXX exited the third quarter with cash and cash equivalents of $391.5 million compared with $141.1 million at the end of the previous quarter. Year-to-date net operating cash flow came in at $234.5 million, compared with $142.5 million a year ago. During the reported quarter, the company bought back 142,000 shares for $15 million.

2016 Guidance

IDEXX has provided an update to its full-year 2016 outlook. Management currently expects revenues of $1.763–$1.773 billion for 2016, reflecting organic revenue growth of approximately 10.5–11.5% (reported 10–11%) compared with the previous top-line guidance of $1.76–$1.78 billion, reflecting normalized organic revenue growth of approximately 10–11.5% (reported 9.5–11%). The current Zacks Consensus Estimate for revenues is pegged at $1.77 billion for the year.

The lower end of IDEXX’s full-year EPS guidance has been raised to the new range of $2.35–$2.39, reflecting annualized growth of 11–13% (adjusted); 21–23% (constant currency adjusted) and 15–17% (reported) compared with the previous guidance of  $2.32–$2.39, reflecting annualized growth of 10–13% (adjusted); 19–23%  (constant currency adjusted) and 13–17% (reported). The current Zacks Consensus Estimate for EPS is pegged at $2.36 for full-year 2016.

Preliminary 2017 Outlook

IDEXX also provided its preliminary 2017 outlook. Full-year revenues are currently expected in the range of $1.910–$1.937 billion, reflecting organic revenue growth of approximately 9–10.5% (reported 8–9.5%). EPS on the other hand is projected in the range of $2.77–$2.93, reflecting annualized growth of 18–25% (Constant Currency) or 18–25% (reported). The current Zacks Consensus Estimate for EPS stands at $2.69 on revenues of $1.91 billion.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter.

IDEXX Laboratories, Inc. Price and Consensus

 

IDEXX Laboratories, Inc. Price and Consensus | IDEXX Laboratories, Inc. Quote

VGM Scores

At this time, IDEXX's stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with a 'D'. Following the exact same course, the stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising.  It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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