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MWI Veterinary Supply (MWIV - Analyst Report) reported fourth quarter 2012 earnings per share (EPS) of 99 cents. The result surpassed the Zacks Consensus Estimate of 97 cents and increased 23.8% year over year. The company also reported a robust 24.4% increase in fiscal 2012 EPS to $4.23, which was ahead of the Zacks Consensus Estimate by 2 cents.

Revenues in the reported quarter were $551.4 million, which comfortably surpassed the Zacks Consensus Estimate of $537 million and increased 30.9% year over year. For the full year, total revenues climbed 32.6% from the year-ago period to $2.08 billion, beating the Zacks Consensus Estimate of $2.06 billion.

Excluding the acquisition of Micro Beef Technologies (acquired on October 31 2011), the company's organic revenue for the quarter grew 13.8% in the U.S. Revenues from the Micro Beef acquisition were $68.4 million, down 1% sequentially. In UK, revenue increased 18.6% year over year, including 21.0% organic growth, partially offset by a 2.4% decline related to foreign exchange.

Commissions plunged 12.0% year over year to $4.3 million, negatively impacted by the loss of a pet food line in fiscal 2012 along with a shift in commission terms for some parasiticides. In the reported quarter, Internet sales to independent veterinary practices and producers in the U.S. grew 29.1% year over year. Veterinary pharmacy programs revenues increased roughly 36% to $52.6 million.

Gross profit increased 35.3% to $68.3 million during the quarter. Gross margin expanded 40 basis points (bps) year over year to 12.4% led by higher product margin and improved freight as a percentage of total revenue, partially offset by a decline in commissions.

In the reported quarter, MWI Vet’s operating income increased 26.3% to $19.7 million. However, with a 38.2% rise in selling, general and administrative (SG&A) expenses to $46.3 million, operating margin dipped 12 bps to 3.9% during the quarter.

The huge increase in SG&A expenses was based on the addition of Micro Beef and the added support for the company’s revenue growth. SG&A expenses, as a percentage of sales, were up 40 bps to 8.4% during the reported quarter.

MWIV exited the fiscal with cash balance of $514,000 compared with $606,000 at the end of fiscal 2011. On September 30, 2012, the company had $48.1 million on its credit facilities compared with $45.2 million at the end of September 30, 2011. The increase in outstanding on credit facility was primarily the result of the acquisition of Micro Beef assets.

Outlook

MWIV provided its guidance for fiscal 2013. The company expects to report revenues of $2.285–$2.335 billion representing annualized growth of 10.1−12.5%. The company also expects EPS to be in the range of $4.66– $4.80 with annualized growth of 10.2−13.5% in 2013. The company’s revenues and EPS guidance are in line with the current Zacks Consensus Estimates of $2.285 billion and $4.73 per share, respectively.

Our Take

We are encouraged with MWI Vet’s better-than-expected fourth quarter and fiscal 2012 results and an encouraging fiscal 2013 guidance, with the growth momentum maintained by the company over the past few years. In a highly fragmented animal health products distribution market, MWI Vet is currently focused on preserving long-term customer relationships as well as building new ones. The company’s recently formed distribution deal with point-of-care blood analysis systems manufacturer Abaxis, Inc. (ABAX - Analyst Report) to store, market and promote the entire veterinary product line of Abaxis in the U.S., is expected to be an important milestone for the company’s growth.

MWI Vet has witnessed substantial market share gains amid a low-growth environment. However, the company faces stiff competition from key players like Henry Schein (HSIC - Analyst Report), among others. Presently, MWI Vet retains a short-term Zacks #2 Rank (Buy). However, over the long term, we have a ‘Neutral’ recommendation on the stock.

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