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Abaxis Q2 Earnings Top, Revenues Miss; Margins Up Y/Y

Abaxis, Inc.ABAX reported second-quarter fiscal 2016 earnings per share (EPS) of 34 cents from continuing operations, which exceeded the Zacks Consensus Estimate by a couple of cents. The quarter’s EPS was also up 36% from the year-ago number. A strong top line coupled with improved margins primarily contributed to the impressive earnings in the second quarter.

 

Abaxis Inc. (ABAX) - Earnings Surprise | FindTheCompany

 

Total Revenue

In the reported quarter, Abaxis delivered revenues of $56 million from continuing operations, reflecting a solid improvement of 11% year over year.  The top line, however, missed the Zacks Consensus Estimate of $57 million by a close margin. The year-over-year top line growth was driven by double-digit revenue increases in North America and internationally.

Unfavorable changes in foreign currency exchange rates reduced the total revenue growth by a little bit more than 1% in the second quarter. However, the Nov 2014 acquisition of QCR, one of Abaxis’ distributors in the U.K., added about 1.5 percentage points to this revenue growth.

Segments in Detail

On a geographic-region basis, revenues from North America (accounting for 80.7% of total revenue) were up 10.1% at $45.2 million, while revenues from the international market (representing 19.3%) increased 14.5% to $10.8 million.

Abaxis operates in three main segments, namely Veterinary, Medical and Other. In the reported quarter, Veterinary sales comprised 83.2% of total sales; Medical sales contributed 15.4% while the remaining 1.4% was from Other.

Veterinary market revenues increased 10.7% year over year to $46.6 million, driven by an 8% increase in veterinary consumable revenues, a 9% rise in veterinary rotors revenue and a 15% increase in instrument revenue. Medical sales were up 13.3% year over year at $8.6 million, primarily on the back of medical rotors revenue that grew 12.7% year over year. Revenues from the Other segment, however, declined 1.8% to $0.7 million.

The company demonstrated solid consumable growth, up 9% year over year to $41.7 million. After adjusting for Patterson stocking order in Sep 2014, the year-over-year growth in Abaxis’ consumable revenues was roughly 13% in the reported quarter. Total Instruments sales increased 15% to $11.6 million.

Operational Updates

Backed by higher revenues, the fiscal second-quarter gross profit rose 13.8% to $32 million. Consequently, gross margin from continuing operations expanded 150 basis points (bps) to 57.1%.

Research and development expenses increased 10.8% year over year to $4.7 million, while selling and marketing expenses inched up 1.6% to $10.8 million. General and administrative expenses were also up 13.7% at $4.3 million. The overall rise in operating expenses was, however, more than compensated by the company’s improved top line and gross margin which consequently resulted in a 300 bps expansion in operating margin in the quarter.

Financial Update

Abaxis exited the second quarter of fiscal 2016 with cash, cash equivalents and short-and-long-term investments of $155.2 million, up 1.4% from the prior first quarter of fiscal 2016.

Abaxis' management paid dividends worth $2.5 million to its shareholders in the second quarter of fiscal 2016, at a rate of 11 cents per share.

Our Take

Abaxis delivered a mixed financial performance in the second quarter of fiscal 2016, wherein the bottom line exceeded the Zacks Consensus Estimate but the top line failed to meet the same. Moreover the company faced a tough currency headwind in the international market – like many other U.S.-based companies with operations abroad – which affected Abaxis’ overall business by 16% during the reported quarter.

Also, in the second quarter of fiscal 2015, Abaxis had enjoyed some substantial stocking orders from new distributors, which made year-over-year comparisons tough this time in the fiscal 2016 second quarter. On a brighter note, despite the presence of such headwinds, Abaxis managed to deliver double-digit growth in its overall business in the reported quarter.

During the fiscal second quarter, Abaxis, for the first time, offered its recently launched Anaplasma and Feline tests. We believe these test offerings will increase Abaxis’ market share in the near future. However, challenges exist in the form of increasing competition for instrument placements in the vet marketplace.

Zacks Rank 

Currently, Abaxis carries a Zacks Rank #3 (Hold). Some top-ranked medical product stocks are Hill-Rom Holdings, Inc. HRC, SurModics, Inc. SRDX and NuVasive, Inc. NUVA. While Hill-Rom Holdings and Surmodics sport a Zacks Rank #1 (Strong Buy), NuVasive holds a Zacks Rank #2 (Buy).

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ABAXIS INC (ABAX): Free Stock Analysis Report
 
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