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IDEXX (IDXX) Earnings Beat Estimates in Q3, Margins Rise

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IDEXX Laboratories, Inc. (IDXX - Free Report) posted third-quarter 2020 earnings per share (EPS) of $1.69, reflecting a 36.3% year-over-year rise. The figure surpassed the Zacks Consensus Estimate by 19%.

Comparable constant-currency EPS growth was 47%, which excludes a 24 cents per share impact from an ongoing litigation matter and tax benefits from share-based compensation of 18 cents per share.

Revenues in Detail

Third-quarter revenues grew 19.2% year over year to $721.8 million. Organically, growth was 17.8%. The metric exceeded the Zacks Consensus Estimate by 7.6%.

The year-over-year upside was primarily driven by 23% reported and 21% organic growth in global Companion Animal Group (“CAG”) Diagnostics’ recurring revenue. High organic gains in the United States and international markets, along with revenue growth of 18% in the Livestock, Poultry and Dairy ("LPD") business also drove the top line. OPTI Medical Systems’ COVID-19 human Polymerase Chain Reaction (“PCR”) testing contributed about 1% to the third-quarter top line.

However, third-quarter results were impacted by a fall in new CAG instrument placement levels and Water business revenues, including pressure on non-compliance water testing, impacted by factors related to the COVID-19 pandemic.

IDEXX Laboratories, Inc. Price, Consensus and EPS Surprise

 

IDEXX Laboratories, Inc. Price, Consensus and EPS Surprise

IDEXX Laboratories, Inc. price-consensus-eps-surprise-chart | IDEXX Laboratories, Inc. Quote

Segmental Analysis

IDEXX derives revenues from four operating segments — CAG, Water, LPD, and Other.

In the third quarter, CAG revenues rose 19.7% (up 18% organically) year over year to $638 million. The Water segment’s revenues were down 4.7% (down 4% organically) year over year to $33.3 million. LPD revenues rose 17.8% (up 17.5% organically) to $36.9 million. Revenues at the Other segment grew 129.5% on reported and organic basis to $13.5 million.

Margins

Gross profit in the third quarter rose 22.5% to $422.6 million. Gross margin expanded 156 basis points (bps) to 58.5% despite a 14.9% rise in cost of revenues to $299.2 million.

Sales and marketing expenses rose 3.5% to $108.2 million, while general and administrative expenses moved up 58.3% to $105 million. Additionally, research and development expenses improved 9.5% to $37.5 million.

Operating profit in the reported quarter was $171.9 million, reflecting an improvement of 22.9% year over year. Operating margin in the quarter expanded 71 bps to 23.8%.

Financial Position

IDEXX exited the third quarter with cash and cash equivalents of $175.6 million compared with $105.3 million at the end of the second quarter. Long-term debt (including current portion) for the company at the end of the third quarter was $903.3 million compared with long-term debt (no current portion of debt present) of $899.6 million at the end of the second quarter.

Cumulative net cash provided by operating activities at the end of the third quarter was $429.1 million compared with $303.7 million in the year-ago period.

2020 Outlook

Uncertainties regarding the duration and impact of the coronavirus pandemic on veterinary service providers have compelled IDEXX Laboratories to refrain from providing any guidance for the year. It did not provide any guidance for the fourth quarter as well.

Our Take

IDEXX exited the third quarter with better-than-expected results. Solid organic-revenue growth is encouraging. The top line in the quarter was driven by strong sales at the CAG and LPD businesses. The company witnessed sturdy gains in CAG Diagnostics recurring revenues, supported by high organic gains in both U.S. and International markets in the quarter under review. Further, the company’s human health business, OPTI Medical Systems’ COVID-19 human PCR testing also contributed to the top line. Management is also upbeat about the sustained strong recovery in pet healthcare. Margin expansions look encouraging.

However, the pandemic has limited the new CAG instrument placement levels, which is worrying. The dismal performance by one of the company’s key reporting segments is deterring as well. The company’s inability to provide any financial outlook is concerning.

Zacks Rank & Other Key Picks

IDEXX has a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. (WST - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Align Technology, Inc. (ALGN - Free Report) .

West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, a Zacks Rank #2 company, reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.

Align Technology reported reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by a stupendous 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently carries a Zacks Rank #2.

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