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Can IDEXX's (IDXX) International Growth Drive Q2 Earnings?

Zacks Equity Research

IDEXX Laboratories, Inc. IDXX is scheduled to report second-quarter 2019 results on Aug 1, before the market opens. In the last reported quarter, the company delivered a positive earnings surprise of 12.5%. IDEXX’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average being 8.19%.

Let's take a look at how things are shaping up prior to this announcement.

Key Catalysts

IDEXX's strong earnings growth trajectory is expected to continue in the second quarter, courtesy of a strong global rise in Companion Animal Group (CAG) Diagnostics revenues. The company is registering solid organic revenues in this segment on gains from consumable and reference lab as well as the growing acceptance of Rapid Assays and Veterinary Software, Services and Diagnostic Imaging Systems.

IDEXX Laboratories, Inc. Price and EPS Surprise

IDEXX Laboratories, Inc. Price and EPS Surprise

IDEXX Laboratories, Inc. price-eps-surprise | IDEXX Laboratories, Inc. Quote

In the United States, the company is witnessing strong uptrends in CAG Diagnostic recurring revenues, led by steady growth in reference lab, consumables and rapid assay sales. Internationally, growth can be attributed to strength in the global catalyst install base. International reference lab uptick is also expected to be solid in the second quarter as the company is making efforts to advance the commercial measures adopted to accelerate growth in this business line while sustaining a strong momentum in expanding the catalyst install base in the international markets.

The Zacks Consensus Estimate of $556 million for CAG Diagnostics revenues suggests a 9.7% improvement from the year-ago reported figure.

The company expects 2019 CAG Diagnostic recurring revenue organic growth of 11% to 12%.

Other Factors

Our hopes are pinned on progress in the Water Business, which of late is gaining traction from encouraging test results in the United States and the global go-direct initiatives. The business witnessed 8% organic strength in the last reported quarter. The company expects high-single-digit organic growth in the business through 2019.

The consensus mark for Water revenues stands at $33.3 million for the yet-to-be-reported quarter, implying an 1.8% improvement from the year-earlier reported number.

Revenue growth in the Livestock, Poultry and Dairy is expected to appear promising in the second quarter, led by gains in herd health screening, poultry and pregnancy products sales.

IDEXX has been constantly fortifying its global footprint. It has been significantly benefiting from the abundant opportunities in the emerging companion animal diagnostics markets. Further, management's regular share buybacks underscore a robust free cash flow reserve. This should get reflected through the second quarter as well.

On the flip side, a foreign currency headwind weighs on the company’s key metrics. The company's heavy reliance on third-party distributors is disturbing as well. Also, the purchasing dynamics of distributors leave a significant adverse impact on the company's sales of instrument consumables and its rapid assay products. Moreover, IDEXX has been witnessing a rise in the operating expenses due to increased head count along with escalated investments in portfolio development as well as expansion endeavors in the United States and internationally.

Additionally, a competitive landscape in the domestic and overseas markets puts pressure on IDEXX's performance. Thus, the struggle to gain a decent market traction might hurt the company’s second-quarter results.

The Zacks Consensus Estimate for overall second-quarter 2019 revenues is pegged at $599.9 million, indicating a 10.5% rise from the prior-year quarter.

Here's What the Quantitative Model Suggests:

The proven Zacks model clearly shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has higher chances of beating estimates if it also has a positive Earnings ESP.

IDEXX has a Zacks Rank #2, which increases the predictive power of ESP. It also has an Earnings ESP of +1.46%. This perfect combination raises the odds of an earnings beat this time around.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as these too have the right mix of elements to exceed expectations this reporting cycle.

Tandem Diabetes Care, Inc. TNDM has an Earnings ESP of +34.78% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

DENTSPLY SIRONA Inc. XRAY has an Earnings ESP of +6.45% and is a Zacks #1 Ranked player.

Henry Schein, Inc. HSIC has an Earnings ESP of +2.41% and a Zacks Rank of 2.

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