IDEXX Laboratories (IDXX) Q4 Earnings Rise; Tweaks View
IDEXX Laboratories Inc. IDXX recorded fourth-quarter 2016 earnings per share (EPS) of 58 cents, up 21% year over year on a reported basis.
As per constant exchange rate or CER, this earnings figure improved 33% year over year after accounting for an adverse 6 cents per share impact related to net changes in foreign exchange. The Zacks Consensus Estimate for earnings is pegged at 51 cents per share.
Full-year 2016 earnings per share came in at $2.44, up 19% (up 25% at CER adjusted basis) from the year-ago period. The Zacks Consensus Estimate for full-year EPS is pegged at $2.37.
Strong top-line growth and operating margin performance in the fourth quarter as well as consistent share repurchases drove the upside in earnings.
IDEXX Laboratories, Inc. Price, Consensus and EPS Surprise
IDEXX Laboratories, Inc. Price, Consensus and EPS Surprise | IDEXX Laboratories, Inc. Quote
Revenues in Detail
IDEXX’s fourth-quarter 2016 revenues rose 11% year over year to $442.9 million, beating the Zacks Consensus Estimate by 1.5%. Organic revenue growth was 12%, exceeding the company’s expected band of 10%–11%.
Full-year revenues came in at $1.77 billion, in line with the Zacks Consensus Estimate. Revenues increased 11% on both a reported and organic basis, driven by 12% reported and organic growth in global CAG Diagnostics recurring revenues.
Region-wise, IDEXX witnessed a 12.2% (both on reported and organic basis) rise in U.S. revenues to $267.7 million in the reported quarter.
In the international market, the company's sales increased 8.8% year over year to $175.2 million (up 10.8% on an organic basis).
Segmental Analysis
IDEXX derives revenues from four operating segments: CAG; Water; Livestock, Poultry and Dairy (LPD), and Other.
In the fourth quarter, revenues improved 12.9% (up 14% organically) to $379.5 million. The Water segment’s revenues inched up 0.8% (up 3% organically) to $24.3 million. LPD revenues, however, decreased 1.2% (down 1% organically) to $32.9 million. Meanwhile, revenues at the Other segment grew 0.9% to $6.1 million.
Margins
Gross profit increased 10.5% to $240.6 million in the reported quarter. However, gross margin contracted 15 basis points (bps) to 54.3% owing to an 11.2% rise in cost of revenue to $202.4 million.
Sales and marketing expenses increased 5.4% to $80.6 million while general and administrative expenses rose 4.1% to $50.7 million. Research and development expenses declined a slight 0.3% to $25.4 million. Overall, operating margin in the quarter improved 218 bps to 18.9%.
Financial Position
IDEXX exited fiscal 2016 with cash and cash equivalents of $154.9 million, up from $128.9 million in the prior fiscal. Full-year net operating cash flow came in at $334.5 million, compared with $216.3 million a year ago.
2017 Guidance
IDEXX has reaffirmed its full-year 2017 organic revenue growth outlook at 9%–10.5% and raised its EPS guidance to $2.85–$3.01 from the earlier range of $2.35–$2.39 supported by continued operating margin expansion aligned with its long-term goals. The raised EPS guidance reflects 7 cents per share of sustained improvement from higher than expected 2016 operating profits, as well as from higher estimated EPS benefits related to the implementation of the new accounting standard for the tax benefit of employee share-based compensation, which offset impacts from updated foreign exchange estimates.
Our Take
IDEXX posted impressive results with earnings and revenues comfortably beating the Zacks Consensus Estimate and improving year over year. Solid organic revenue growth buoys optimism. The company’s raised EPS guidance for 2017 also buoys optimism.
During the reported quarter, the company attained an important milestone by entering into the S&P 500 category. Per management, the fourth quarter and full-year outperformance is on account of its innovative programs to improve the standard of care for pets and to drive growth of veterinary services. In 2016, the company placed a record number of premium chemistry instruments, premium hematology instruments and 1,575 IDEXX SediVueDx instruments, the industry's first-and-only in-house urine sediment analyzer.
However, foreign currency fluctuations are expected to continue to hurt the company’s operating results, although lower than the extent expected earlier.
Zacks Rank & Key Picks
IDEXX currently has a Zacks Rank #3 (Hold). Better-ranked medical stocks are Glaukos Corporation GKOS, Cardiovascular Systems CSII and Neogen Corp. NEOG. Glaukos sports a Zacks Rank #1 (Strong Buy) while Cardiovascular Systems and Neogen carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Glaukos gained over 100% in the last one year in comparison to the S&P 500’s gain of only 19.2%. The company has a stellar four-quarter average earnings surprise of over 100%.
Cardiovascular Systems surged over 100% in the last one year in comparison to the S&P 500. It has a four-quarter average earnings surprise of 67.8%.
Neogen gained 27.1% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth of 16.7% for the next five years compared to the industry average of 15.2%.
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