Following last month's announcement of its acquisition, MWI Veterinary Supply, Inc. ( MWIV ) reported first-quarter fiscal 2015 earnings per share (EPS) of $1.57, up a solid 8.3% year over year and ahead of the Zacks Consensus Estimate by a nickel. However, the upbeat financials did not seem to stir up investors much. Consequently, the company's share price remained almost flat since the announcement of the reported results and finally closed at $189.91 on Friday.
On Jan 11, 2015, MWI Veterinary declared that it has entered into a definitive agreement under which pharmaceutical distribution company, AmerisourceBergen Corporation ( ABC ), will acquire the former for approximately $2.5 billion. The offer is conditional on MWI Veterinary's stockholders tendering at least a majority of outstanding shares.
On Jan 26, AmerisourceBergen commenced a tender offer to purchase all outstanding shares of MWI Veterinary, which unless extended will expire on Feb 23, 2015. Both the companies expect the transaction to close during the March quarter of 2015.
Revenues in Detail
First-quarter revenues (including the impact of the IVESCO Holdings acquisition closed on Nov 1, 2013 and that of VetSpace acquired on Sep 2, 2014) increased 16.2% year over year to $798.5 million, comfortably surpassing the Zacks Consensus Estimate of $784 million.
Revenue growth in the U.S. was 17.7% on a year-over-year basis owing to IVESCO acquisition-related growth as well as organic growth. Organic revenue growth in the U.S. was roughly 10% in the reported quarter.
Internet sales to independent veterinary practices and producers in the U.S. increased 22% during the reported quarter. Revenues from veterinary pharmacy programs in the U.S. reached $89.1 million, reflecting a year-over-year improvement of 30%.
On the other hand, revenues from the U.K. increased 4.3%, thanks to 4.4% organic growth and a 2.1% increase related to the acquisition of VetSpace. However, these positives were partially neutralized by a 2.2% fall related to foreign currency translation. Commissions were up 14% year over year to $4.4 million.
While product sales to related party rose 2.7% year over year to $21.3 million, gross agency billings increased 8.2% to $73.1 million in the reported quarter.
Moreover, the company increased "new placements" of Abaxis' diagnostic instruments by 124.6% to 456 units during the first quarter. MWI Veterinary achieved this increase despite facing new competition from multiple new Abaxis distributors.
Vendor rebates for the reported quarter declined $2.5 million compared to the prior-year quarter.
Gross profit improved 11.9% to $99.7 million in the quarter. However, gross margin contracted 50 basis points (bps) year over year to 12.5% due to an expected reduction in a large manufacturer's rebate.
Despite a 13.9% rise in selling, general and administrative (SG&A) expenses to $63.9 million, MWI Veterinary's adjusted operating income climbed 8.5% to $35.8 million. The increase in SG&A expenses was induced primarily by the addition of the IVESCO business in Nov 2013. However, adjusted operating margin contracted 30 bps to 4.5% in the quarter.
MWI Veterinary reported a better-than-expected fiscal first quarter beating estimates on both lines. Moreover, the quarter's performance reflected a solid improvement over the prior-year period's equivalent numbers.
Animal health is a growing market, both in the U.S. and international space. Given MWI Veterinary's leading positions in both the companion and production animal markets worldwide, the combined entity is expected to pose major competitive threat in this niche. Once the buyout is over, we expect a new industry leader, delivering quality service and superior value for its customers and manufacturer partners, to emerge in this space.
Currently, MWI Veterinary has a Zacks Rank #3 (Hold), while AmerisourceBergen retains a Zacks Rank #2 (Buy). Some other med/dental-supply stocks that warrant a look are Bio-Reference Laboratories Inc. ( BRLI ) and Halyard Health, Inc. ( HYH ). Both these stocks sport a Zacks Rank #1 (Strong Buy).
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