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IDEXX Records Q2 Earnings Beat, Revenues Miss but Rise Y/Y - Analyst Blog

Zacks Equity Research
Updated

IDEXX Laboratories Inc. IDXX reported second-quarter 2015 earnings of 60 cents per share beating the Zacks Consensus Estimate by a couple of cents.

On a year-over-year basis, earnings per share (EPS) reflected a solid 9.1% improvement fueled by consistent 11% normalized organic revenue growth and better-than-expected operating margins. However, foreign exchange adversely affected EPS growth by 5 cents.

 

Revenues in Detail

IDEXX’s revenues improved 5.6% year over year to $413.3 million, which lagged the Zacks Consensus Estimate of $415 million. Foreign exchange adversely affected revenue growth by 7%. Normalized organic revenue growth was 11% partly driven by incremental margin capture associated with the company’s move to an all-direct sales model for US CAG Diagnostics.

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Region-wise, IDEXX experienced a 12.8% improvement in the U.S. amounting to revenues of $254.2 million. In the international market, the company's sales declined 3.4% year over year to $159.1 million, on account of over 11% normalized organic growth. Normalized CAG diagnostic recurring revenue growth was 13% in international markets, reflecting continued strong gains across major regions.

Segment Analysis

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

In the second quarter, the company’s revenues improved 9.2% to $351.6 million in CAG, driven by constant strong gains in reference laboratory diagnostics, consulting services and instrument consumables. The segment’s normalized organic revenues increased 13%, primarily due to a 19% gain in IDEXX VetLab consumables and 12% growth in reference lab and consulting services.

The Water segment’s revenues grew 2.3% to $25.1 million, up 8% organically. Organic growth was primarily driven by worldwide increases in IDEXX’s core coliform and E.coli products and the launch of its new Quanti-Tray Sealer PLUS product.

Second-quarter LPD revenues dropped 14.1% to $32.1 million, down 1% organically. Lower livestock services revenue in Australia outweighed the solid gains in Europe, North America and China, thereby resulting in the revenue decline.

Revenues in the 'Other' segment declined 25.6% to $4.6 million.

Margin

Gross profit increased 6.5% to $232.8 million in the reported quarter. Consequently, gross margin expanded 30 basis points (bps) to 56.3% driven by lower product and royalty costs as well as net favorable margin impacts from foreign exchange reflecting benefits from hedge gains.

Sales and marketing expenses spiked 10.6% to $75.2 million while general and administrative expenses increased 7.3% to $44.9 million. Research and development expenses, however, dropped 4.4% to $24.3 million.  

Operating margin remained almost flat at 21.4%, reflecting higher operating expenses in the quarter.

Financial Position

IDEXX exited the quarter with cash and cash equivalents of $163.2 million, compared with $182.2 million at the end of first quarter 2015. The company also reported total long-term debt of $598.9 million as of Jun 30, 2015, up from $500 million as of Mar 31, 2015. As of Jun 30, 2015, net operating cash inflow was $65.5 million, compared to net operating cash outflow of $14.6 million, as of Mar 31, 2015.

During the reported quarter, the company bought back 1,417,000 shares for $92 million. The company is left with 9,332,194 shares under its repurchase authorization.

2015 Outlook

IDEXX has reaffirmed its full-year 2015 outlook. Management continues to expect revenues of $1.60–$1.62 billion in 2015, reflecting normalized organic revenue growth of 12–13%. IDEXX also continues to expect its adjusted EPS in the band of $2.07–$2.12, reflecting annualized growth of 4–6%.

Our Take

We believe IDEXX’s robust worldwide commercial capabilities and best-in-class products which include the next-generation chemistry analyzer – Catalyst One are the key growth drivers going forward.

However, foreign currency fluctuations are expected to consistently hamper IDEXX’s revenue growth, operating profits and EPS growth, in the remaining quarters of 2015.

Zacks Rank

Currently, IDEXX carries a Zacks Rank #3 (Hold). Some better-ranked medical instrument stocks are LDR Holding Corp. LDRH, Mazor Robotics Ltd. MZOR and Avinger, Inc. AVGR. While LDR Holding and Mazor Robotics sport a Zacks Rank #1 (Strong Buy), Avinger holds a Zacks Rank #2 (Buy).

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IDEXX LABS INC (IDXX): Free Stock Analysis Report
 
MAZOR ROBOTICS (MZOR): Free Stock Analysis Report
 
LDR HOLDING (LDRH): Free Stock Analysis Report
 
AVINGER INC (AVGR): Free Stock Analysis Report
 
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