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Abaxis, Inc. (ABAX - Analyst Report) reported second-quarter fiscal 2014 earnings per share of 18 cents, missing the Zacks Consensus Estimate by 2 cents. This reflects a fall of 68% from the year ago quarter, at 58 cents.

Total Revenues

Revenues improved 4% year over year to $45.9 million, but lagged the Zacks Consensus Estimate of $48 million. It generated revenues of $44.2 million in the prior year quarter.

Segment in Detail

On a geographical-region basis, revenues from North America (accounting for 81.2% of total revenues) rose 4% to $37.3 million, while revenues from the international market (representing 18.5%) increased 2% to $8.5 million. However, excluding the impact of the CRO deal that was closed in the first quarter of fiscal 2013, overseas revenues improved 11% year over year.

Abaxis operates three main segments, namely Veterinary, Medical and Other. In the reported quarter, 16% of total sales were medical sales, 83% were vet sales and 1% other.

Veterinary market revenues grew 8% year over year to $37.9 million, while sales in the Medical market declined 10% year over year to roughly $7.2 million. Excluding sales to the U.S. government, worldwide Medical sales decreased 8% year over year to $6.9 million. Sales from Other segment declined 32% year over year to approximately $0.8 million.

Operational Updates

The fiscal second-quarter gross profit was $21.8 million, as compared to $23.1 million in the previous year quarter, a downfall of 5.4%. In terms of basis points, it contracted a massive 450 basis points (bps) to 47.7% from 52.2%. The decline was attributed to unfavorable sales mix consisting of lower margin of vet consumable, with higher instrument and fewer disc sales.

Research and development expenses were $3.4 million or 7.5% of revenue, compared with $3.5 million or 8% of revenue in the prior year quarter.

Selling and Marketing Expenses amounted to $9.9 million or 21.6% of revenue compared with $11.5 million or 26% of revenue in the year ago period.

General and administrative expenses of $2.9 million, accounted for 6.3% of revenues, compared with $4.6 million or 10.4% in second quarter fiscal 2013.

On a reported basis, Abaxis posted net income of $4 million compared with $12.9 million in the prior-year quarter. It must be however, noted that the year-ago figure included gains from a legal settlement of $17.3 million.

Financial Update

Abaxis exited the quarter with cash, cash equivalents and short and long term investments of $103.9 million as of Sep 30, 2013 versus $95.2 million as on Mar 31, 2013.
 
Our Take

Abaxis continues to fall short of expectations, as it has missed the previous two quarterly estimates as well. Barring a slight growth in the veterinary market, the overall quarterly performance was nevertheless weak.

The consistent downfall in margin is a serious cause of concern as it might have an impact on the bottom line performance of the company. Moreover, the company’s dependence on the distributors to sell its products has to be tactfully managed as smooth long term relationships with the vendors ultimately ensure healthy business for the company. Low worldwide penetration rates and a tough competitive market further lower the confidence of the investors on the future growth prospects of the company.

Currently, Abaxis carries a Zacks Rank #5 (Strong Sell). Other well-placed stocks that are worth a look are Bio-Rad Laboratories, Inc. (BIO - Snapshot Report) and INSYS Therapeutics, Inc. (INSY - Snapshot Report), each carrying a Zacks Rank #1 (Strong Buy), and Boston Scientific Corp. (BSX - Analyst Report), carrying  Zacks Rank #2 (Buy).

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