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Why Is Idexx (IDXX) Down 0.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Idexx Laboratories (IDXX - Free Report) . Shares have lost about 0.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Idexx due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

IDEXX Rides on Solid CAG Diagnostics Business in Q3

reported third-quarter 2018 earnings per share (EPS) of $1.05, up 32.9% year over year on a reported basis and 39% on a comparable constant exchange rate (CER) basis. The figure also surpassed the Zacks Consensus Estimate of 98 cents by 7.1%.

Revenues in Detail

Revenues rose 10.9% year over year (up 12% on organic basis) to $545.4 million. However, the metric was somewhat in line with the Zacks Consensus Estimate.

The upside was driven by strong global gains in Companion Animal Group (CAG) Diagnostics recurring revenues, including high-teens revenue gains in IDEXX VetLab across consumable and double-digit reference laboratory diagnostic and consulting services. Further, steady rapid assay sales growth contributed to the top line.

Segmental Analysis

IDEXX derives revenues from four operating segments: CAG; Water; Livestock, Poultry and Dairy (LPD); and Other.

In the third quarter, CAG revenues rose 12% (up 12.9% organically) year over year to $478.1 million. Water segment’s revenues were up 6.7% from the prior-year quarter (up 8.9% organically) to $33.1 million. LPD revenues grew 3.6% (up 7% organically) to $29.4 million. Revenues at the Other segment declined 17.7% on a reported basis to $4.8 million.

Margins

Gross profit increased 11.5% to $305.6 million in the reported quarter in spite of a 10% rise in cost of revenues to $239.8 million. Accordingly, gross margin expanded 30 basis points (bps) to 56%.

Sales and marketing expenses rose 7.1% to $95.1 million, while general and administrative expenses increased 11.9% to $64 million. Research and development expenses rose 5.8% to $29.2 million. Operating margin in the quarter improved 110 bps to 21.5%.

Financial Position

IDEXX exited the third quarter of 2018 with cash and cash equivalents of $146.9 million, compared with $174.6 million at the end of the second quarter. Net cash provided by operating activities was $264.4 million for the nine months ending Sep 30, 2018, compared with $252.2 million in the year-ago period.

2018 Guidance Updated

IDEXX has lowered the high end of its 2018 revenue outlook to the range of $2,205-$2,215 million (earlier $2,205-$2,230 million). Moreover, the company has lowered the high end of its 2018 revenue organic growth guidance to 11.5-12% from the previous 11.5-12.5%. The Zacks Consensus Estimate for 2018 revenues is pegged at $2.22 billion.

Management raised the EPS guidance to $4.16-$4.21 from the earlier $4.10-$4.20, supported by continued operating margin expansion and expected rise in share-based compensation tax benefits. The updated outlook represents EPS growth of 41-43% on a reported basis compared with 39-43% stated previously. The Zacks Consensus Estimate for 2018 adjusted EPS is pegged at $4.19, within the guided range.

2019 Preliminary Outlook Initiated

IDEXX also provided a preliminary guidance for 2019. Full-year revenues are expected in the range of $2,385-$2,425 million, reflecting organic revenue growth of 9.5-11% (reported 8-9.5%). EPS, in the meanwhile, is projected in the range of $4.61-$4.75, reflecting annualized growth of 15-18% (constant currency) or 10–14% (reported). The current Zacks Consensus Estimate for EPS stands at $4.86 on revenues of $2.44 billion.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -7.59% due to these changes.

VGM Scores

At this time, Idexx has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Idexx has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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