On Mar 11, 2014, we issued an updated research report on Abaxis (ABAX). The company’s third-quarter fiscal 2014 financial results lagged the Zacks Consensus Estimate on both top and bottom-line fronts.
Abaxis tumbled once again in the third quarter of fiscal 2014 with earnings per share of 14 cents missing the Zacks Consensus Estimate as well as the year-ago earnings by a massive 31.8%. Revenues also fell 18% to $40.8 million lagging the Zacks Consensus Estimate of $49 million.
The disappointing performance in the mainstay North American market was another downside in the quarter. According to Abaxis, it continued to face challenges while transiting from a direct sales approach to a distributor model which caused imbalances in field inventory. Mixed performance from some of the smaller distributor partners of Abaxis and disruptions in field sales organization also posed as potent headwinds. All these factors resulted in a cascading effect that made forecast difficult, and led to inefficiencies in factories, leading to higher factory cost and lower gross margins.
Gross margin went downhill by over 499 basis points (bps) in the quarter. We believe that a growing proportion of revenues from low-margin offerings may adversely affect the company’s margin further. We also remain apprehensive about Abaxis’ dependence on distributors and its fiercely competitive environment.
Barring the fourth quarter of fiscal 2013, Abaxis has delivered negative surprises in each of the last four quarters, with an average miss of 18.60%. The company’s earnings per share in the last reported quarter declined a huge 30% on a year-over-year basis. The stock currently carries a Zacks Rank #5 (Strong Sell).
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