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IDEXX (IDXX) Tops Q2 Earnings, Revenues, FY16 View Up
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IDEXX Laboratories Inc. (IDXX - Free Report) reported second-quarter 2016 earnings per share (EPS) of 74 cents, up 23% year over year on a reported basis.
On a constant currency adjusted basis, this figure improved 33% year over year to 80 cents; after accounting for an adverse 6 cent per share impact related to net changes in foreign exchange, handily beating the Zacks Consensus Estimate by 29%.
Moreover, the federal research and development tax credit boosted the company’s second-quarter 2016 EPS growth by 2%. Strong top-line growth and better-than-expected operating margins in the second quarter as well as consistent share repurchases drove the upside in EPS.
IDEXX’s second-quarter revenues improved 12.9% year over year to $466.6 million and steered past the Zacks Consensus Estimate of $446 million. Organic revenue growth was 13%, ahead of the company’s expectation driven by strong performance by the Companion Animal Group (CAG) and Water segments.
Region-wise, in the reported quarter, IDEXX witnessed a 12% improvement in the U.S. amounting to revenues of $286 million (up 12% on an organic basis) supported by strong growth in premium instrument placements, including benefits from the launch of SediVue that contributed about 3% to overall US growth. US CAG recurring diagnostic revenues grew 10% organically, supported by continued double-digit revenue growth in the company’s lab business.
In the international market, the company's sales increased 17% year over year to $181 million (up 14% on an organic basis). CAG Diagnostics’ recurring revenue growth was 17% in international markets, reflecting increased consumable revenue growth supported by high levels of instrument placements.
Segmental Analysis
IDEXX derives revenues from four operating segments: CAG; Water; Livestock, Poultry and Dairy (LPD); and Other.
In the second quarter, revenues improved 13.8% to $400.2 million, up 13% organically at CAG , driven by 12% organic growth in CAG Diagnostics recurring revenues and 35% organic revenue growth in CAG Diagnostics instruments. Strong growth was witnessed in reference laboratory diagnostic and consulting services and IDEXX VetLab consumables. There was 7% organic growth in Rapid assay revenues driven by higher volume and timing of promotional programs.
The Water segment’s revenues grew 10.8% organically to $27.8 million,, up 12% organically primarily boosted by worldwide increases in core coliform and E.coli products, as well as 4% benefits from the project related revenues and incremental revenues associated with the 2015 Crypto outbreak in the UK.
First-quarter LPD revenues increased 2.5% on a reported basis and up 4% organically to $32.9 million. Solid growth in China and Latin America were partially offset by lower bovine revenues in Europe. Meanwhile, revenues in the 'Other' segment were up 23.9% to $5.7 million.
Gross profit increased 11.9% to $260.5 million in the reported quarter. However, gross margin contracted 47 basis points (bps) to 55.8%.Excluding foreign exchange impact and including the lapping of $5 million in prior-year hedge gains, gross margins increased 70 bps year over year.
Sales and marketing expenses increased 1.9% to $76.7 million while general and administrative expenses rose 20.9% to $54.3 million. Research and development expenses increased 4.5% to $25.4 million.
Operating margin in the quarter expanded 174 bps to 33.9%. Excluding currency impacts, operating margin was up 230 bps to 22.3% reflecting volume leverage and controlled operating expense growth, including benefits from the shifting of some investments to the second half of 2016.
Financial Position
IDEXX exited the second quarter with cash and cash equivalents of $141.1 million compared with $133 million at the end of the previous quarter. Year-to-date net operating cash flow came in at $134.1 million, compared with $65.5 million a year ago. During the reported quarter, the company bought back 269,000 shares for $23 million.
Outlook for 2016
Encouraged by its strong start to 2016 and expected favorable foreign exchange rates, IDEXX raised its full-year 2016 outlook. Management currently expects revenues of $1.76–$1.78 billion for 2016, reflecting organic revenue growth of approximately 10–11.5% (reported 9.5–11%) against the previous top-line guidance of $1.73–$1.75 billion, reflecting normalized organic revenue growth of approximately 9–10% (reported 8–9%). The current Zacks Consensus Estimate for revenues is pegged at $1.73 billion for the year.
EPS is currently projected in the band of $2.32–$2.39, reflecting annualized growth of 10–13% (adjusted); 19–23% (constant currency adjusted) and 13–17% (reported); against the previous guidance of $2.18–$2.25, reflecting annualized growth of 3–7% (adjusted); 13–17% (constant currency adjusted) and 6–10% (reported). The current Zacks Consensus Estimate for EPS is pegged at $2.20 for full-year 2016.
Our Take
IDEXX has continued in 2016 on a promising note. After a solid start, the company registered square beat in its second quarter 2016 too with respect to the Zacks Consensus Estimate. Also, the company’s trend of consistent share buybacks for the past few quarters reflects its strong free cash flow reserve as well as management’s success in optimizing IDEXX’s capital structure. The company’s raised its guidance for 2016 which also buoys optimism.
Strong instrument placements, global lab momentum reflecting the company’s leverage of expanded commercial capability as well as strong test menu expansion remained some of the key highlights for IDEXX’s business at the start of 2016. However, foreign currency fluctuations are expected to consistently hurt IDEXX’s operating results, although lower than the extent as expected before through all the remaining quarters of 2016.
Zacks Rank & Other Key Picks
IDEXX currently carries a Zacks Rank #3 (Hold). Some better-ranked medical stocks are Masimo Corporation (MASI - Free Report) , Natus Medical Inc. and Cepheid . All the three stocks sport a Zacks Rank #1 (Strong Buy).
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IDEXX (IDXX) Tops Q2 Earnings, Revenues, FY16 View Up
IDEXX Laboratories Inc. (IDXX - Free Report) reported second-quarter 2016 earnings per share (EPS) of 74 cents, up 23% year over year on a reported basis.
On a constant currency adjusted basis, this figure improved 33% year over year to 80 cents; after accounting for an adverse 6 cent per share impact related to net changes in foreign exchange, handily beating the Zacks Consensus Estimate by 29%.
Moreover, the federal research and development tax credit boosted the company’s second-quarter 2016 EPS growth by 2%. Strong top-line growth and better-than-expected operating margins in the second quarter as well as consistent share repurchases drove the upside in EPS.
Revenues in Detail
IDEXX’s second-quarter revenues improved 12.9% year over year to $466.6 million and steered past the Zacks Consensus Estimate of $446 million. Organic revenue growth was 13%, ahead of the company’s expectation driven by strong performance by the Companion Animal Group (CAG) and Water segments.
Region-wise, in the reported quarter, IDEXX witnessed a 12% improvement in the U.S. amounting to revenues of $286 million (up 12% on an organic basis) supported by strong growth in premium instrument placements, including benefits from the launch of SediVue that contributed about 3% to overall US growth. US CAG recurring diagnostic revenues grew 10% organically, supported by continued double-digit revenue growth in the company’s lab business.
In the international market, the company's sales increased 17% year over year to $181 million (up 14% on an organic basis). CAG Diagnostics’ recurring revenue growth was 17% in international markets, reflecting increased consumable revenue growth supported by high levels of instrument placements.
Segmental Analysis
IDEXX derives revenues from four operating segments: CAG; Water; Livestock, Poultry and Dairy (LPD); and Other.
In the second quarter, revenues improved 13.8% to $400.2 million, up 13% organically at CAG , driven by 12% organic growth in CAG Diagnostics recurring revenues and 35% organic revenue growth in CAG Diagnostics instruments. Strong growth was witnessed in reference laboratory diagnostic and consulting services and IDEXX VetLab consumables. There was 7% organic growth in Rapid assay revenues driven by higher volume and timing of promotional programs.
The Water segment’s revenues grew 10.8% organically to $27.8 million,, up 12% organically primarily boosted by worldwide increases in core coliform and E.coli products, as well as 4% benefits from the project related revenues and incremental revenues associated with the 2015 Crypto outbreak in the UK.
First-quarter LPD revenues increased 2.5% on a reported basis and up 4% organically to $32.9 million. Solid growth in China and Latin America were partially offset by lower bovine revenues in Europe. Meanwhile, revenues in the 'Other' segment were up 23.9% to $5.7 million.
IDEXX LABS INC Price, Consensus and EPS Surprise
IDEXX LABS INC Price, Consensus and EPS Surprise | IDEXX LABS INC Quote
Margins
Gross profit increased 11.9% to $260.5 million in the reported quarter. However, gross margin contracted 47 basis points (bps) to 55.8%.Excluding foreign exchange impact and including the lapping of $5 million in prior-year hedge gains, gross margins increased 70 bps year over year.
Sales and marketing expenses increased 1.9% to $76.7 million while general and administrative expenses rose 20.9% to $54.3 million. Research and development expenses increased 4.5% to $25.4 million.
Operating margin in the quarter expanded 174 bps to 33.9%. Excluding currency impacts, operating margin was up 230 bps to 22.3% reflecting volume leverage and controlled operating expense growth, including benefits from the shifting of some investments to the second half of 2016.
Financial Position
IDEXX exited the second quarter with cash and cash equivalents of $141.1 million compared with $133 million at the end of the previous quarter. Year-to-date net operating cash flow came in at $134.1 million, compared with $65.5 million a year ago. During the reported quarter, the company bought back 269,000 shares for $23 million.
Outlook for 2016
Encouraged by its strong start to 2016 and expected favorable foreign exchange rates, IDEXX raised its full-year 2016 outlook. Management currently expects revenues of $1.76–$1.78 billion for 2016, reflecting organic revenue growth of approximately 10–11.5% (reported 9.5–11%) against the previous top-line guidance of $1.73–$1.75 billion, reflecting normalized organic revenue growth of approximately 9–10% (reported 8–9%). The current Zacks Consensus Estimate for revenues is pegged at $1.73 billion for the year.
EPS is currently projected in the band of $2.32–$2.39, reflecting annualized growth of 10–13% (adjusted); 19–23% (constant currency adjusted) and 13–17% (reported); against the previous guidance of $2.18–$2.25, reflecting annualized growth of 3–7% (adjusted); 13–17% (constant currency adjusted) and 6–10% (reported). The current Zacks Consensus Estimate for EPS is pegged at $2.20 for full-year 2016.
Our Take
IDEXX has continued in 2016 on a promising note. After a solid start, the company registered square beat in its second quarter 2016 too with respect to the Zacks Consensus Estimate. Also, the company’s trend of consistent share buybacks for the past few quarters reflects its strong free cash flow reserve as well as management’s success in optimizing IDEXX’s capital structure. The company’s raised its guidance for 2016 which also buoys optimism.
Strong instrument placements, global lab momentum reflecting the company’s leverage of expanded commercial capability as well as strong test menu expansion remained some of the key highlights for IDEXX’s business at the start of 2016. However, foreign currency fluctuations are expected to consistently hurt IDEXX’s operating results, although lower than the extent as expected before through all the remaining quarters of 2016.
Zacks Rank & Other Key Picks
IDEXX currently carries a Zacks Rank #3 (Hold). Some better-ranked medical stocks are Masimo Corporation (MASI - Free Report) , Natus Medical Inc. and Cepheid . All the three stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>