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IDEXX's (IDXX) Low LPD Sales, Rise in Expenses Dampen Growth

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IDEXX Laboratories, Inc (IDXX - Free Report) is suffering from currency fluctuations along with high dependence on third-party distributors. The stock carries a Zacks Rank #4 (Sell) at present.

In the third quarter, IDEXX’s Livestock, Poultry and Dairy (LPD) revenues declined 23% organically, constrained by comparisons to high prior-year levels, additional impacts in China, changes in local African swine fever (ASF) disease management approaches, lower pork prices and changes in government requirements related to livestock infectious disease testing programs.

Further, the contraction of gross margin and escalating operating costs are concerns. Gross margin contracted 19 basis points (bps) to 58.4% on a 12.8% rise in the cost of revenues. Further, sales and marketing expenses rose 15% while research and development expenses climbed 7.8% in the third quarter.

The instrument consumables and rapid assay products in the company’s Companion Animal Group (CAG) segment are sold domestically and in certain other geographies by third-party distributors who purchase products from IDEXX and sell them to veterinary practices, which are the end-users. As a result, distributor purchasing dynamics have an impact on the company’s reported sales of these products.

IDEXX Laboratories, Inc. Price

Distributor purchasing dynamics can be affected by many factors, which may not be directly related to the underlying end-user demand for the products. Consequently, reported results may reflect fluctuations in inventory levels held by distributors and may not necessarily mirror changes in the underlying end-user demand.

Weak solvency and capital structure are added concerns.

On a positive note, IDEXX exited the third quarter of 2021 with better-than-expected results. Solid organic revenue growth is encouraging. The top line in the quarter was driven by strong sales at the Companion Animal Group (CAG) and Water businesses. Third-quarter results reflected 11.5% organic growth in CAG diagnostic recurring revenues, with double-digit gains across the U.S. and international markets. The two-year average annual organic growth rate for CAG diagnostic recurring revenues was maintained at 16%, reflecting mid-to-high teens average gains across major modalities.

IDEXX continues to demonstrate solid growth globally. International revenues in the third quarter of 2021 were up 8.2% organically, primarily aided by a double-digit gain in CAG and Water businesses.

CAG Diagnostic recurring revenues in the reported quarter reflected 14% growth in international regions. On a two-year basis, the average annual CAG Diagnostic recurring revenue growth was 16% overall, reflecting 16% gains in both the U.S. and international regions. Further, Global Reference Lab gains were strong driven by high same-store volume growth with strong gains across testing categories.

Over the past year, IDEXX has been outperforming its industry with respect to share price movement. The stock has gained 17.8% compared with the 3.8% rise of the industry.

Key Picks

A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , Apollo Endosurgery, Inc. (APEN - Free Report) and Patterson Companies, Inc. (PDCO - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare, carrying a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.

AMN Healthcare has outperformed its industry over the past year. AMN has gained 65.8% versus the 55.8% industry decline.

Apollo Endosurgery, carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7%. The company‘s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 25.6%, on average.

Apollo Endosurgery has outperformed its industry in the past year. APEN has gained 112.3% against the industry’s 1.4% decline.

Patterson Companies, carrying a Zacks Rank #2, has a long-term earnings growth rate of 9.9%. The company surpassed earnings estimates in three of the trailing four quarters and missed in one, delivering an average earnings surprise of 3.7%.

Patterson Companies has underperformed its industry over the past year. PDCO has declined 42.2% versus the industry’s 14% rise.