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Why Is Idexx (IDXX) Up 5.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Idexx Laboratories (IDXX - Free Report) . Shares have added about 5.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Idexx due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

IDEXX Laboratories reported second-quarter 2018 earnings per share (EPS) of $1.23, up 29.5% year over year on a reported basis and up 33% on a comparable constant exchange rate (CER) basis. This also surpassed the Zacks Consensus Estimate by 4.2%.

Revenues in Detail

Revenues rose 14.1% year over year (up 12% on organic basis) to $580.8 million, surpassing the Zacks Consensus Estimate of $574.9 million.

The upside was driven by strong global gains in Companion Animal Group (“CAG”) Diagnostics recurring revenues, including double-digit organic revenue gains in in IDEXX VetLabacross consumable and reference laboratorydiagnostic and consulting services. Further, steady overall growth contributed to the top line.

Segmental Analysis

IDEXX derives revenues from four operating segments: CAG; Water; Livestock, Poultry and Dairy (LPD); and Other.
In the second quarter, CAG revenues rose 15.3% (up 13% organically) year over year to $507.4 million. Water segment’s revenues were up 11.2% from the prior-year quarter (up 9% organically) to $32.6 million. LPD revenues grew 3.9% (flat organically) to $34.9 million. Revenues at the Other segment rose 6.7% on a reported basis to $5.6 million.

Margins

Gross profit increased 13.6% to $332.4 million in the reported quarter. However, gross margin contracted 27 basis points (bps) to 57.2% on a 14.8% rise in cost of revenues to $248.3 million.

Sales and marketing expenses rose 9.8% to $96.3 million, while general and administrative expenses increased 10.1% to $61.1 million. Research and development expenses rose 9.3% to $29.5 million. Operating margin in the quarter improved 99 bps to 25.1%.

Financial Position

IDEXX exited the second quarter of 2018 with cash and cash equivalents of $174.6 million, compared with $159.2 million at the end of the first quarter. Year-to-date net cash provided by operating activities was $153.7 million, compared with $141.5 million in the year-ago period.

2018 Guidance

IDEXX has lowered the upper end of its 2018 revenue outlook to a new range of $2,205-$2,230 million (earlier range was $2,205-$2,245 million). However, the company has raised the lower end of its 2018 revenue organic growth guidance to 11.5-12.5% from the previous 10.5-12.5%. The Zacks Consensus Estimate for 2018 revenues is pegged at $2.23 billion, within the guided range.

Management also raised the low end of its EPS guidance to $4.10-$4.20 from the earlier $4.06-$4.20, supported by continued operating margin expansion aligned with its long-term goals. The updated outlook represents EPS growth of 39-43% on a reported basis compared with 38-43% stated previously. The Zacks Consensus Estimate for 2018 adjusted EPS is pegged at $4.17, within the guided range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Idexx has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Idexx has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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