IDEXX's Strong CAG Impresses, Stiff Competition Concerns
On Oct 6 2015, we issued an updated research report on IDEXX Laboratories, Inc.IDXX .
The second-quarter 2015 earnings of IDEXX outperformed the Zacks Consensus Estimate. Though the company's top line missed the Zacks Consensus Estimate in the last quarter, it increased year over year primarily on strong performance from its Companion Animal Group (CAG) segment.
IDEXX continues to demonstrate solid growth worldwide. The company enjoys strong international expansion with Catalyst placements playing a major role. During the second quarter, IDEXX continued the global rollout of Catalyst One with launches in Australia and Brazil. The company currently has plans to complete the Catalyst One launches in Asia (excluding Japan) and the rest of Latin America by the third quarter of 2015.
Also, continued expansion of global instrument base and high customer adoption rate supports the projection of 15.5%-16.5% normalized organic growth in global CAG diagnostic recurring revenues in 2015, including about 5% benefit from U.S. margin capture.
Currently, IDEXX is on track to accelerate CAG Diagnostics' recurring revenue growth in the coming quarters. This is because the company continues to be productive in its all-direct sales strategy in the U.S. and its momentum overseas. Management believes that an unprecedented wave of innovations, which IDEXX already boasts and plans to bring to the market on a larger scale, will immensely benefit it in both the near and long term.
Moreover, supported by a strong cash position, the company remains focused on delivering incremental returns to investors, thereby leveraging its earnings power.
However, foreign currency fluctuations significantly hampered the overall performance of IDEXX. During the second quarter, changes in foreign exchange rates impacted total revenue by approximately $25.6 million, primarily due to the strong U.S. dollar. This also reduced the company's operating profit by $6.7 million and earnings per share by 5 cents during the quarter.
Currently, IDEXX estimates that the strengthening of the U.S. dollar will reduce its 2015 revenues by $86 million, operating profit by $17.9 million and EPS by 13 cents - lower than that estimated by the company earlier.
Also, high dependence on third-party distributors and intense competition continue to pose threats. IDEXX currently carries a Zacks Rank #3 (Hold).
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