) reported earnings per share ("EPS) of 58 cents in the second
quarter of fiscal 2013. However, after taking into account a net
gain related to the legal settlement with
), adjusted EPS for the quarter came in at 18 cents, in line with
the Zacks Consensus Estimate and 3 cents above the year-ago
Revenues during the quarter increased 11% year over year to
$44.3 million, nominally missing the Zacks Consensus Estimate of
$45 million. The growth was based on higher sales in both North
America (up 12% to $36 million) and in the international market
(up 4% to $8.3 million).
Within the customer group, Veterinary market revenues
witnessed an upside of 11% in the reported quarter to $34.9
million, while Medical Market sales delivered 7% year-over-year
growth to $7.9 million. However, sales from the Other customer
group declined 26.3% year over year to $1.4 million. Excluding
sales to the U.S. government, worldwide Medical sales escalated
17% year over year to $7.4 million.
Total consumable sales were flat year over year at $29.4
million while instrumental sales increased by 33% to $11.6
million. Sales from medical and veterinary reagent discs were
down 4% to $22.0 million. Total medical and veterinary instrument
unit sales were up 28% year over year to 1,567 units. In the
medical market, excluding sales to the U.S. government, Piccolo
unit sales were up 86%, and in the veterinary market, the sale of
veterinary units increased 24% year over year. Moreover, service
revenue from Abaxis Veterinary Reference Laboratories ("AVRL")
maintained its growth momentum and recorded sales of $1.1
million, up 26% year over year.
Although gross profit in the quarter increased 5% year over
year to $23.1 million, gross margin contracted 277 basis points
(bps) to 52.24%. The company recorded higher research and
development (up 19.04% to $3.6 million), sales and marketing (up
23.2% to $11.5 million) and general and administrative expenses
(up 2.8% to $4.6 million) during the quarter. Consequently,
operating income declined 34.4% to $3.4 million, leading to a 520
bps contraction in adjusted operating margin to 7.7%.
Abaxis exited the first quarter with cash and cash equivalents
and short-term investments of $78.9 million, up from $67.5
million at fiscal 2012 end.
Lawsuit with Cepheid Over
In September 2012, Abaxis reached a settlement with Cepheid
regarding several patents related to reagent and chemical
compositions and processes. According to the settlement,
Cepheid agreed to pay $17.3 million to Abaxis.
Abaxis operates in a niche market of portable medical and
veterinary blood analysis systems. Low worldwide penetration
provides the scope for substantial growth in this niche industry.
Additionally, we are optimistic about AVRL's encouraging
performance that completed a full year, supporting the growth of
the company's veterinary segment.
Moreover, we are also optimistic about the company's recently
formed definitive distribution relationship with
MWI Veterinary Supply, Inc.
), a worldwide distributor of animal health products. Per the
deal, effective January, 2013, MWI Vet, as a business partner of
Abaxis, will be able to store, market and promote the entire
veterinary product line of Abaxis in the U.S.
We believe that this is a large market with high potential for
growth. An increase in the number of households with pets,
enhanced human-animal bonding, aging pet population, more focus
on animal health or preventive care and advancements in
pharmaceuticals and diagnostic testing would result in increased
spending, which in turn would be favorable for the company.
However, the competitive landscape is tough with the presence of
big players like
) in the human and veterinary diagnostic market.
Currently, Abaxis carries a Zacks #3 Rank (short-term 'Hold'
rating). Over the long term, we maintain our 'Neutral'
recommendation on the stock.
ABAXIS INC (ABAX): Free Stock Analysis Report
ALERE INC (ALR): Free Stock Analysis Report
CEPHEID INC (CPHD): Free Stock Analysis
MWI VET SUPPLY (MWIV): Free Stock Analysis
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