IDEXX Laboratories, Inc.
) reported earnings per share (EPS) of $1.10 in the second-quarter
of 2014, up 11.1% from the year-ago tally of 99 cents. Earnings
also beat the Zacks Consensus Estimate by 4 cents or 3.8%. The
earnings improvement was a result of robust revenue growth coupled
with strong cash flows in the business and the company's firm
capital structure, as can be observed in the quarter's outcome.
However, this positive earnings news failed to impress investors.
Consequently, IDEXX Laboratories' share price declined 2.7%
yesterday, to eventually close at $129.40 yesterday.
Idexx Laboratories, Inc - Earnings Surprise |
Revenues in Detail
IDEXX reported revenues of $390.1 million in the second quarter,
increasing 10.6% year over year. The top line also beat the Zacks
Consensus Estimate of $386 million. The year-over-year improvement
was led by solid worldwide growth in Companion Animal Group's
recurring diagnostic revenues as well as better-than-expected
performance in Livestock, Poultry and Dairy (LPD).
Region-wise, IDEXX experienced solid 9.7% year-over-year growth in
the U.S and 11.9% growth in the international market.
IDEXX derives revenues from four operating segments, viz. Companion
Animal Group (CAG); Water; Livestock, Poultry and Dairy (LPD); and
In the second quarter, the company reported revenues of $326.7
million in CAG, up 10.4% year over year. The segment's top line
increased 12% organically primarily due to a 13% growth in IDEXX
VetLab consumables and an 11% rise in reference lab services.
Furthermore, a 34% year-over-year increase in Catalyst instrument
placement to nearly 800 and a 13% improvement in hematology
placements also boosted growth in this segment.
The Water segment reported revenues of $24.5 million, up 9.4% year
over year and up 7% organically. Organic growth was primarily
driven by increased sales of E. coli testing products on account of
new customer acquisitions, and higher sales volumes in North
America and the Asia-Pacific region.
Second-quarter LPD revenues grossed $32.7 million, registering an
increase of 15.8% year over year and organic growth of 6%. Organic
revenue growth in this segment was primarily driven by increased
sales in China along with higher number of testing in New Zealand
related to Livestock exports. Further, in this segment, IDEXX
continued to benefit from the slower-than-expected ramp down in
bovine programs in Western Europe
Revenues in the 'Other' segment grew 1.8% year over year to $6.2
Gross profit increased 10.5% to $218.5 million in the second
quarter of 2014. However, gross margin remained almost flat at 56%
compared to the year-ago quarter equivalent. This flat margin was
an outcome of gains in price which was offset by the absence of
prior-year foreign exchange hedging gains and higher freight and
Sales and marketing expenses spiked 17.5% to $68 million while
general and administrative expenses increased 7.7% to $41.8
million. Research and development expenses also scaled up 14.7%
year over year to $25.4 million. Operating margin contracted
roughly 100 basis points to 21.3% in the reported quarter.
IDEXX exited the first quarter with cash and cash equivalents of
$305 million, up from $279.1 million at year-end 2013. For the
first half of 2014, net operating cash flow was $115.3 million, up
12.5% year over year. The company also reported total long-term
debt of $150 million (net of current portion) as of June 30, 2014.
During the quarter under review, the company bought back
approximately 975,000 shares at an average price of $129.77 a
Bolstered by a strong second quarter, IDEXX has revised its fiscal
2014 guidance. Revenues are now expected in the range of $1.51
billion to $1.52 billion, representing annualized growth of 10.0%
to 10.5% and 9.0% to 9.5% organically. This marks an improvement
from the earlier guided range of organic growth of 8% to 9%.
Adjusting for the deferred revenue impacts of Catalyst One
introductory offer in 2014, the company expects organic revenue
growth in the range of 8.5% to 9.0%. The current Zacks Consensus
Estimate of $1.49 billion for 2014 revenue lies below the company's
IDEXX has raised the lower end of its EPS guidance for 2014. The
company now expects adjusted EPS in the range of $3.79 to $3.86
(previous guidance was $3.76-$3.86). Adjusted EPS growth is
projected in the range of 11% to 14%. The current Zacks Consensus
Estimate of $3.86 is pegged at the higher end of the company guided
Management has also provided a baseline preliminary outlook for
2015 and expects 9% to 10% organic revenue growth in the next year.
We are encouraged with IDEXX's solid second-quarter 2014 results
which comfortably beat both the top and bottom line estimates.
Moreover, the company experienced strong revenue growth in each of
its segments and across geographical regions. IDEXX's new sales
force structure has delivered an impressive performance in the
reported quarter, with increased number of Catalyst placements in
both North America and the international market. In addition,
management observed robust double digit placement gains in the
international market, particularly in Europe and the emerging
markets of Asia Pacific.
Management expects gains from SNAP Pro launch will propel
consistent growth in rapid assay's contribution to recurring
diagnostics revenues. In addition, IDEXX is expanding its sales
coverage to geographies previously covered only through telephonic
sales. To serve this purpose, the company has added 25 more field
service representatives to its existing force of 48 and increased
insight sales and order taking representatives from 24 to 68. This,
in turn, should result in market expansion for the company and
garner higher profitability.
Currently, IDEXX carries a Zacks Rank #2 (Buy). Other medical
instrument stocks that also warrant a look include RTI Surgical
), Accuray Incorporated (
) and Bacterin International Holdings, Inc. (
). While RTI Surgical and Accuray sport a Zacks Rank #1 (Strong
Buy), Bacterin holds a Zacks Rank #2 (Buy).
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