MWI Vet's EPS In Line, Revs Beat

MWI Veterinary Supply (MWIV - Analyst Report) reported fourth quarter 2011 EPS of 80 cents, in line with the Zacks Consensus Estimate but 12.7% higher than the year-ago quarter EPS. For fiscal 2011, EPS came in at $3.4, meeting the Zacks Consensus Estimate but well ahead of $2.70 in fiscal 2010.

The company reported revenues of $421.3 million in the reported quarter, exceeding the Zacks Consensus Estimate of $397 million and up 17.4% year over year.  In fiscal 2011, revenues came in at $1.57 billion, beating the Zacks Consensus Estimate of $1.54 billion and up 27.3% year over year.

The company generated 18.9% of revenue growth in the U.S and 10.5% year over year in UK, including 6.2% organic growth and 4.3% growth related to foreign currency exchange. During the quarter, US revenues from existing customers represented 56% of the growth. Commissions grew 3.8% year over year to $4.9 million.

In the reported quarter, Internet sales to independent veterinary practices and producers in the US rose 34% year over year. Product sales from Internet generated 37% of the total revenue in US during the quarter. Veterinary pharmacy programs revenues increased roughly 31% to $38.8 million.

Gross profit increased 10.8% to $50.4 million during the quarter. However, gross margin contracted 70 basis points (bps) compared with the year-ago period. The decline was due to unfavorable product mix for the quarter and decrease in vendor rebates by approximately $400,000.

In the reported quarter, MWIV’s operating income increased 13.1% to $15.6 million. However, operating margin during the quarter dipped 14 bps to 3.69% primarily due to a 10.4% rise in Selling, General and Administrative (SG&A) expenses to $33.5 million.

Higher compensation costs from increased headcount to support revenue growth, as well as an increase in bank service fees related to customer credit card usage and direct acquisition-related expenses of $555,000 led to the rise in SG&A expenses.

MWIV exited the fiscal with cash balance of $606,000 compared with $911,000 at the end of fiscal 2010. Cash flow from operations at the end of fiscal 2011 was $32.4 million compared with $16.9 million in the prior-year period.

Earlier this month, MWIV completed the acquisition of Micro Beef Technologies Ltd for $60 million. The total consideration includes approximately $53.4 million in cash and common stock valued at $6.6 million. In connection with the acquisition, the company increased the borrowing capacity of its existing credit facility from $100 million to $150 million.

Outlook

MWIV provided guidance for fiscal 2012. The company expects to report revenues of $1.87- $1.93 billion (annualized growth of 19−23%) resulting in EPS of $3.70-$3.90 (9−15%). The revenue guidance is higher than the current Zacks Consensus Estimate of $1.74 billion while, EPS estimate of $3.87 remains within the range.

MWIV, which is one of the leading distributors of animal health products to veterinarians across the US, has acquired many companies to either expand into under-penetrated markets or for increasing its focus in new areas. The company has witnessed substantial market share gain amidst a low-growth environment. However, the company faces stiff competition from key players like Henry Schein (HSIC - Snapshot Report) and Animal Health International.

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