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MWI Vet Beats on Earnings, Guides High

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MWI Veterinary Supply Inc. reported third-quarter fiscal 2013 earnings per share (EPS) of $1.32, up 14.8% on a year-over-year basis. The result representing the seventh successive quarterly earnings beat for MWI Vet reflects a beat of 6.5% over the Zacks Consensus Estimate.

Quarter under Review

Revenues increased 9.3% year over year to $606.4 million in the third quarter. Despite challenging conditions in end markets, MWI Vet posted healthy revenue growth. However, the result was almost in line with the Zacks Consensus Estimate of $607 million.
Revenue growth in the U.S. was 11.3% on a year-over-year basis on the back of robust contributions from diagnostic lines and benefits from the PCI Animal Health buyout. In the U.S., Internet sales to independent veterinary practices and producers climbed 25.8% year over year. Further, revenues from the veterinary pharmacy program in the U.S. shot up 11.6% to $51.3 million in the reported quarter.

Revenues from the U.K. remained flat year over year on an organic basis. However, revenues declined 3% on a reported basis as unfavorable foreign exchange impact adversely affected growth in the region. Per management, the decline was a result of a shift in the company's focus toward improvement of cash flow and return on invested capital (ROIC).
Commissions increased 4.8% year over year to $4.8 million on the back of external incentives. Vendor rebates surged $3 million from the year-ago period on the heels of revenue growth and timing of producer rebate programs.
Gross profit improved 11.5% to $77.5 million in the quarter. As a result, gross margin expanded 30 basis points (bps) year over year to 12.8% in the quarter due to higher vendor rebates.
Despite the 10.2% rise in selling, general and administrative (SG&A) expenses to $48.4 million, MWI Vet’s adjusted operating income climbed 13.8% to approximately $29.1 million. As a result, operating margin expanded 20 bps to 4.8% in the reported quarter.
MWI Vet exited the quarter with cash balance of $531,000 compared with $452,000 at the end of the sequentially prior quarter. Operating cash flow was $55 million in the quarter, higher than the company’s expectations as the company recorded solid cash flow in the U.K.
Outlook Tweaked

MWI Vet updated its guidance for fiscal 2013. The company now expects to report revenues of $2.33–$2.36 billion compared with the prior outlook of $2.32–$2.36 billion. The updated outlook reflects annualized growth of 12.3%−13.7%. The current Zacks Consensus Estimate of $2.36 billion tallies with the high end of the guidance range.
MWI Vet presently envisages EPS in the range of $4.89–$4.94 compared with $4.79–$4.89 earlier, with annualized growth of 15.6%−16.8% for the ongoing fiscal. The current Zacks Consensus Estimate of $4.87 lies below the company’s guidance range.

The revised outlook for revenues and EPS reflects annualized growth of 6.6%−12% and 7.1%−12.1%, respectively in the fourth quarter of fiscal 2013.

Our Take

The company has consistently delivered strong quarterly results in the recent past, topping Zacks Consensus Estimates. Carrying forward this momentum, MWI Vet reported an overall healthy third-quarter with strong growth trends. Despite the drought conditions in the production animal market in the U.S., the company’s top-line managed to meet the Zacks Consensus Estimate. Apart from the close call on the sales front, MWI Vet experienced robust EPS growth.

Considering the positive momentum, the company raised its expectations for fiscal 2013. We are optimistic about MWI Vet’s strong growth prospects going forward. The results also sparked market optimism as stock price rose 10.89% (or $14.14) on the day of the results to reach a 52-week high of $144.51.  

Notably, MWI Vet has the strength to deliver consistent growth performance amid a low-growth environment. Given the stellar earnings performance and consistent positive surprise, the stock carries a Zacks Rank #2 (Buy). Other stocks such as Align Technology Inc. (ALGN - Free Report) , The Cooper Companies Inc. (COO - Free Report) and Henry Schein Inc. (HSIC - Free Report) also appear impressive. While Align carries a Zacks Rank #1 (Strong Buy), the other two are Zacks Rank #2 stocks.


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