Abaxis Exits Fiscal 2012 on a High

Abaxis Inc. (ABAX - Analyst Report) reported a 40% year over year increase in EPS to 21 cents in the fourth quarter of fiscal 2012, beating the Zacks Consensus Estimate of 17 cents. For fiscal 2012, EPS came in at 58 cents, higher than the Zacks Consensus Estimate of 54 cents but missed the EPS of 64 cents in fiscal 2011.

Net sales during the quarter increased 14% year over year to $42.7 million, and surpassed the Zacks Consensus Estimate of $41 million. The year-over-year growth was based on higher sales in both North America (up 16% to $35.4 million) and in the international market (up 5% to $7.3 million). For the full year, total revenues increased 9% to $156.6 million, almost in line with the Zacks Consensus Estimate.

Within the customer group, Veterinary market revenues witnessed an upside of 19% in the reported quarter to $34.1 million while Medical Market sales remained flat year over year at $7.6 million. However, sales from the Other customer group plummeted 26.7% year over year to $0.9 million. Excluding sales to the US government, worldwide Medical sales crept up 3% year over year to $7.2 million.

Total consumable sales climbed 11% year over year or $3 million while instrumental sales increased by an aggregate of $2 million or 25% year over year. Moreover, sales from medical and veterinary reagent discs increased 6% to $23.8 million. Total medical and veterinary reagent disc unit sales during the quarter remained flat year over year at 1.8 million.

Gross profit in the quarter increased 14.3% year over year to $23.3 million, leading to 20 basis points (bps) increase in gross margin to 54.7%. Alongside, the company witnessed an 11.8% rise in operating expenses to $16.9 million. However, operating income increased 21.6% to $6.4 million, leading to a 100 bps expansion in the operating margin to 15.1%.

Abaxis exited the fiscal year with cash and cash equivalents and short-term investments of $67.5 million, down from $69.5 million at the end of March 2011.

Abaxis operates in a niche market of portable medical and veterinary blood analysis systems. Low worldwide penetration provides scope for substantial growth in this niche industry. Alongside, the company’s new full-service laboratory testing facility, Abaxis Veterinary Reference Laboratories is expected to compliment the company’s veterinary sector’s growth going ahead.

Additionally, during the reported quarter, investment was made to set up a new distribution center in Europe, which we find encouraging and in line with the company’s strategy of strengthening its global footprint.

However, we remain apprehensive based on Abaxis’ dependency on distributors to sell its products and increased legal expenses. Meanwhile, the presence of big players like Alere (ALR - Snapshot Report) has made the human and veterinary diagnostic market highly competitive.

Currently, Abaxis carries a Zacks #3 Rank (short-term Hold rating). Over the long term, we are Neutral on the stock.