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IDEXX (IDXX) Beats on Q3 Earnings, Provides 2017 Outlook
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IDEXX Laboratories Inc. (IDXX - Free Report) recorded third-quarter 2016 earnings per share (EPS) of 62 cents, up 29% year over year on a reported basis. The figure also handily beat the Zacks Consensus Estimate of 59 cents
On a constant currency adjusted basis, this figure improved 22% year over year after accounting for an adverse 4 cents per share impact related to net changes in foreign exchange and a 6 cents per share of software impairment charge in the prior-year period.
Strong top-line growth and operating margin performance in the third quarter as well as consistent share repurchases drove the upside in EPS.
IDEXX’s third-quarter 2016 revenues improved 10.3% year over year to $448.3 million but missed the Zacks Consensus Estimate of $449 million by a whisker. Organic revenue growth was 10%, within the company’s expected band, driven by 12% organic growth in CAG recurring revenues and continued strong premium instrument placements, including benefits from the launch of SediVue, which contributed about 2% to overall revenue growth.
Region-wise, in the reported quarter, IDEXX witnessed a 10% improvement in the U.S. amounting to revenues of $277 million supported by strong growth in premium instrument placements, including benefits from the launch of SediVue. U.S. CAG recurring diagnostic revenues grew 9% organically, net of about 1% of growth headwind related to pure equivalent days in the quarter.
In the international market, the company's sales increased 11% year over year to $171 million (up 11% on an organic basis). CAG Diagnostics’ recurring revenue growth was 17% organically in international markets. International consumable revenue grew by more than 20% on the expansion of the Catalyst platform globally.
Segmental Analysis
IDEXX derives revenues from four operating segments: CAG; Water; Livestock, Poultry and Dairy (LPD), and Other.
In the third quarter, revenues improved 13.8% to $385.3 million, up 12% organically at CAG, driven by strong CAG recurring diagnostic revenue gains across the U.S. and international regions, and continued high global growth in instrument sales. The Water segment’s revenues grew 8.8% organically to $27.9 million, primarily boosted by double-digit gains in international markets.
Third-quarter LPD revenues, however, decreased 2.5% organically to $29.8 million as strong growth in China and Brazil was offset by lower levels of testing related to European bovine disease eradication programs and reduced health herd screening in Asia. Meanwhile, revenues in the Other segment declined 9.2% to $5.6 million.
Margins
Gross profit increased 10% to $246.7 million in the reported quarter. However, gross margin contracted 15 basis points (bps) to 55%.
Sales and marketing expenses increased 9.4% to $79.9 million while general and administrative expenses rose 13.9% to $52.6 million. Research and development expenses grew 3.3% to $25.7 million. Operating margin in the quarter improved 2 bps to 19.7%.
Financial Position
IDEXX exited the third quarter with cash and cash equivalents of $391.5 million compared with $141.1 million at the end of the previous quarter. Year-to-date net operating cash flow came in at $234.5 million, compared with $142.5 million a year ago. During the reported quarter, the company bought back 142,000 shares for $15 million.
2016 Guidance
IDEXX has provided an update to its full-year 2016 outlook. Management currently expects revenues of $1.763–$1.773 billion for 2016, reflecting organic revenue growth of approximately 10.5–11.5% (reported 10–11%) compared with the previous top-line guidance of $1.76–$1.78 billion, reflecting normalized organic revenue growth of approximately 10–11.5% (reported 9.5–11%). The current Zacks Consensus Estimate for revenues is pegged at $1.77 billion for the year.
The lower end of IDEXX’s full-year EPS guidance has been raised to the new range of $2.35–$2.39, reflecting annualized growth of 11–13% (adjusted); 21–23% (constant currency adjusted) and 15–17% (reported) compared with the previous guidance of $2.32–$2.39, reflecting annualized growth of 10–13% (adjusted); 19–23% (constant currency adjusted) and 13–17% (reported). The current Zacks Consensus Estimate for EPS is pegged at $2.36 for full-year 2016.
Preliminary 2017 Outlook
IDEXX also provided its preliminary 2017 outlook. Full-year revenues are currently expected in the range of $1.910–$1.937 billion, reflecting organic revenue growth of approximately 9–10.5% (reported 8–9.5%). EPS on the other hand is projected in the range of $2.77–$2.93, reflecting annualized growth of 18–25% (Constant Currency) or 18–25% (reported). The current Zacks Consensus Estimate for EPS stands at $2.69 on revenues of $1.91 billion.
Our Take
IDEXX posted a mixed third quarter with earnings per share handily beating the Zacks Consensus Estimate while revenues missed the same by a whisker. However, solid organic revenue growth buoys optimism. Also, the company’s trend of consistent share buybacks for the past few quarters reflects its strong free cash flow reserve as well as management’s success in optimizing IDEXX’s capital structure. The company’s raised guidance for 2016 also inspires optimism.
Strong instrument placements, global lab momentum reflecting the company’s leverage of expanded commercial capability as well as strong test menu expansion remained a few key highlights for IDEXX’s business. However, foreign currency fluctuations are expected to consistently hurt the company’s operating results, although lower than the extent expected earlier.
Zacks Rank & Key Picks
IDEXX Laboratories currently holds a Zacks Rank #2 (Buy). Other well-ranked medical stocks are GW Pharmaceuticals plc , Baxter International Inc. (BAX - Free Report) and Bovie Medical Corporation . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GW Pharmaceuticals surged 67.5% year to date compared to the S&P 500’s 3.3% over the same period. The company’s four-quarter average earnings surprise is 41.6%.
Baxter international rallied 22.91% year to date, above the S&P 500’s 3.3%. It has a trailing four-quarter average positive earnings surprise of 27%.
Bovie Medical recorded a 20.1% gain in the past one year, above the S&P 500’s 2.4%. The company has a trailing four-quarter average earnings surprise of 6.3%.
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IDEXX (IDXX) Beats on Q3 Earnings, Provides 2017 Outlook
IDEXX Laboratories Inc. (IDXX - Free Report) recorded third-quarter 2016 earnings per share (EPS) of 62 cents, up 29% year over year on a reported basis. The figure also handily beat the Zacks Consensus Estimate of 59 cents
On a constant currency adjusted basis, this figure improved 22% year over year after accounting for an adverse 4 cents per share impact related to net changes in foreign exchange and a 6 cents per share of software impairment charge in the prior-year period.
Strong top-line growth and operating margin performance in the third quarter as well as consistent share repurchases drove the upside in EPS.
IDEXX LABS INC Price, Consensus and EPS Surprise
IDEXX LABS INC Price, Consensus and EPS Surprise | IDEXX LABS INC Quote
Revenues in Detail
IDEXX’s third-quarter 2016 revenues improved 10.3% year over year to $448.3 million but missed the Zacks Consensus Estimate of $449 million by a whisker. Organic revenue growth was 10%, within the company’s expected band, driven by 12% organic growth in CAG recurring revenues and continued strong premium instrument placements, including benefits from the launch of SediVue, which contributed about 2% to overall revenue growth.
Region-wise, in the reported quarter, IDEXX witnessed a 10% improvement in the U.S. amounting to revenues of $277 million supported by strong growth in premium instrument placements, including benefits from the launch of SediVue. U.S. CAG recurring diagnostic revenues grew 9% organically, net of about 1% of growth headwind related to pure equivalent days in the quarter.
In the international market, the company's sales increased 11% year over year to $171 million (up 11% on an organic basis). CAG Diagnostics’ recurring revenue growth was 17% organically in international markets. International consumable revenue grew by more than 20% on the expansion of the Catalyst platform globally.
Segmental Analysis
IDEXX derives revenues from four operating segments: CAG; Water; Livestock, Poultry and Dairy (LPD), and Other.
In the third quarter, revenues improved 13.8% to $385.3 million, up 12% organically at CAG, driven by strong CAG recurring diagnostic revenue gains across the U.S. and international regions, and continued high global growth in instrument sales. The Water segment’s revenues grew 8.8% organically to $27.9 million, primarily boosted by double-digit gains in international markets.
Third-quarter LPD revenues, however, decreased 2.5% organically to $29.8 million as strong growth in China and Brazil was offset by lower levels of testing related to European bovine disease eradication programs and reduced health herd screening in Asia. Meanwhile, revenues in the Other segment declined 9.2% to $5.6 million.
Margins
Gross profit increased 10% to $246.7 million in the reported quarter. However, gross margin contracted 15 basis points (bps) to 55%.
Sales and marketing expenses increased 9.4% to $79.9 million while general and administrative expenses rose 13.9% to $52.6 million. Research and development expenses grew 3.3% to $25.7 million. Operating margin in the quarter improved 2 bps to 19.7%.
Financial Position
IDEXX exited the third quarter with cash and cash equivalents of $391.5 million compared with $141.1 million at the end of the previous quarter. Year-to-date net operating cash flow came in at $234.5 million, compared with $142.5 million a year ago. During the reported quarter, the company bought back 142,000 shares for $15 million.
2016 Guidance
IDEXX has provided an update to its full-year 2016 outlook. Management currently expects revenues of $1.763–$1.773 billion for 2016, reflecting organic revenue growth of approximately 10.5–11.5% (reported 10–11%) compared with the previous top-line guidance of $1.76–$1.78 billion, reflecting normalized organic revenue growth of approximately 10–11.5% (reported 9.5–11%). The current Zacks Consensus Estimate for revenues is pegged at $1.77 billion for the year.
The lower end of IDEXX’s full-year EPS guidance has been raised to the new range of $2.35–$2.39, reflecting annualized growth of 11–13% (adjusted); 21–23% (constant currency adjusted) and 15–17% (reported) compared with the previous guidance of $2.32–$2.39, reflecting annualized growth of 10–13% (adjusted); 19–23% (constant currency adjusted) and 13–17% (reported). The current Zacks Consensus Estimate for EPS is pegged at $2.36 for full-year 2016.
Preliminary 2017 Outlook
IDEXX also provided its preliminary 2017 outlook. Full-year revenues are currently expected in the range of $1.910–$1.937 billion, reflecting organic revenue growth of approximately 9–10.5% (reported 8–9.5%). EPS on the other hand is projected in the range of $2.77–$2.93, reflecting annualized growth of 18–25% (Constant Currency) or 18–25% (reported). The current Zacks Consensus Estimate for EPS stands at $2.69 on revenues of $1.91 billion.
Our Take
IDEXX posted a mixed third quarter with earnings per share handily beating the Zacks Consensus Estimate while revenues missed the same by a whisker. However, solid organic revenue growth buoys optimism. Also, the company’s trend of consistent share buybacks for the past few quarters reflects its strong free cash flow reserve as well as management’s success in optimizing IDEXX’s capital structure. The company’s raised guidance for 2016 also inspires optimism.
Strong instrument placements, global lab momentum reflecting the company’s leverage of expanded commercial capability as well as strong test menu expansion remained a few key highlights for IDEXX’s business. However, foreign currency fluctuations are expected to consistently hurt the company’s operating results, although lower than the extent expected earlier.
Zacks Rank & Key Picks
IDEXX Laboratories currently holds a Zacks Rank #2 (Buy). Other well-ranked medical stocks are GW Pharmaceuticals plc , Baxter International Inc. (BAX - Free Report) and Bovie Medical Corporation . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GW Pharmaceuticals surged 67.5% year to date compared to the S&P 500’s 3.3% over the same period. The company’s four-quarter average earnings surprise is 41.6%.
Baxter international rallied 22.91% year to date, above the S&P 500’s 3.3%. It has a trailing four-quarter average positive earnings surprise of 27%.
Bovie Medical recorded a 20.1% gain in the past one year, above the S&P 500’s 2.4%. The company has a trailing four-quarter average earnings surprise of 6.3%.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>