Abaxis (ABAX) Q3 Bleak: Earnings In Line, Revenues Miss

Abaxis, Inc.ABAX - a global provider of point-of-care blood analyzers - reported third-quarter fiscal 2017 earnings per share of 30 cents, in line with the Zacks Consensus Estimate. However, it remained 14.3% below the year-ago figure.

The bottom-line miss can be primarily attributed to sluggish revenue performance and margin drags due to escalating costs and expenses.

Total Revenue

In the fiscal third quarter, Abaxis recorded revenues of $52.8 million, flat year over year. The top line, however, missed the Zacks Consensus Estimate of $54 million. According to the company, foreign currency exchange rate fluctuations had a significant impact on Abaxis' top line as currencies dented total revenue by 1.2% in the quarter.

This apart, a reduction in medical and veterinary orders from distributors including Abbott Point of Care, Inc. affected the results. Also, a difficult comparison for the medical business due to a large sale of Piccolo Xpress instruments in the People's Republic of China in the prior-year quarter impacted the reported quarter's performance.

ABAXIS, Inc. Price, Consensus and EPS Surprise

ABAXIS, Inc. Price, Consensus and EPS Surprise | ABAXIS, Inc. Quote

Segments in Detail

In the quarter, on a geographic basis, revenues from North America (accounting for 78.6% of total revenue) grew 0.9% to $41.5 million, while revenues from the international markets (accounting for the rest) declined 4.5% to $11.2 million.

Abaxis operates under three main segments, namely, Veterinary, Medical and Other. In the reported quarter, Veterinary sales accounted for 81.8% of total sales, Medical sales contributed 16.4% while the remaining 1.7% was generated from Other.

Veterinary market revenues improved 5.6% year over year to $43.2 million, driven by a 6% improvement in veterinary consumable revenues. Veterinary instrument revenues were flat year over year.

Revenues from the medical market were down 21.3% year over year at $8.7 million, on account of a 58% decline in Piccolo instrument revenues, 1% drop in Piccolo rotor revenues. Also, revenues for North American medical division were down 20% year over year. On a global basis, Abaxis sold 212 Piccolos in the third quarter compared with 580 in the year-ago period.

Abaxis exhibited strong consumable growth, up 5% year over year to $40.4 million, accounting for approximately 76.5% of the company's total worldwide revenues in the quarter. However, total instruments' sales decreased 19% to $9.3 million.

Operational Updates

Fiscal third-quarter's gross profit dropped 0.7% to $29.4 million. Gross margin contracted 27 basis points (bps) to 55.7%.

Research and development expenses increased 7.9% year over year to $4.8 million, while sales and marketing expenses rose 2.3% to $10.6 million. General and administrative expenses, however, plunged 10.4% to $3.2 million. The resultant operating income was down 3.7% at $10.8 million for the quarter, while operating margin declined 74 bps to 20.5%.

Financial Update

Abaxis exited fiscal third quarter with cash, cash equivalents and short-term investments of $137.9 million, compared with $145.5 million in the prior quarter.

Our Take

Abaxis' third-quarter fiscal 2017 results failed to impress with revenues missing the Zacks Consensus Estimate and earnings barely in line. Amid several woes discussed above, we are however looking forward to improved consumable revenues that boosted veterinary sales performance of Abaxis during the quarter.

Meanwhile, the company is rigorously working on portfolio expansion strategies and plans to showcase several new animal health products at the North American Veterinary Conference that is coming up next month. These products include a new point-of-care urine sediment analyzer as well as a new point-of-care urine chemistry analyzer. According to Abaxis, addition of these products should potentially improve its growth performance over the long run. Also, strong cash position buoys optimism on the stock.

Zacks Rank & Key Picks

Abaxis currently bears a Zacks Rank #5 (Strong Sell). Some better - ranked medical stocks are Neogen Corp. NEOG , Hill-Rom Holdings, Inc. HRC and OraSure Technologies, Inc. OSUR each carrying Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Neogen gained 27.7% in the past one year, better than the S&P 500's 21.3% gain. The stock has an impressive long-term earnings growth of 16.7% for the next five years compared with the industry average of 15.2%.

Hill-Rom jumped 24.9% in the last one year in comparison to the S&P 500 mark. The company has a four-quarter average positive earnings surprise of 5.98%.

OraSure Technologies surged 65.1% in the last one year in comparison to the S&P 500 mark. The company has a stellar four-quarter average earnings surprise of over 100%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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