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MWI Vet Earnings Beat, Sales Miss

Zacks Equity Research

MWI Veterinary Supply (MWIV) reported second-quarter fiscal 2013 earnings per share (EPS) of $1.19, up 4.4% on a year-over-year basis. The result also surpassed the Zacks Consensus Estimate of $1.17, representing the sixth successive quarterly earnings beat for MWI Vet. 

Second-Quarter Review


Revenues increased 11% year over year to $563.1 million in the second quarter. Despite challenging conditions in end markets, MWI Vet posted double-digit revenue growth. Moreover, initial results from the diagnostic line are also encouraging. However, the result was well behind the Zacks Consensus Estimate of $571 million.


Revenue growth in the U.S. was 10.7% on a year-over-year basis with about 9% organic growth. In the U.S., Internet sales to independent veterinary practices and producers rose 22% year over year. U.K. witnessed revenue growth of 13.2%, based on organic revenue growth of 14.4% in the region and unfavorable foreign exchange impact of 1.2%. 


Commissions increased 16.2% year over year to $5.1 million on the back of external incentives. Vendor rebates surged $991,000 from the year-ago period on the heels of revenue growth and timing of manufacturing programs. 


Gross profit improved 12.1% to $74.7 million in the quarter. As a result, gross margin expanded 20 basis points (bps) year over year to 13.3% in the quarter due to higher vendor rebates. 


Despite the absolute increase in SG&A expenses due to the addition of Micro, it remained flat as a percentage of sales at 8.5% in the quarter. However, MWI Vet’s operating income climbed 13.2% to $24.2 million. As a result, operating margin expanded 10 bps to 4.3% in the reported quarter.


MWI Vet exited the second quarter with cash balance of $452,000 compared with $514,000 at the end of fiscal 2012. 


As of Mar 31, 2013, the company had $64 million on its credit facilities compared with $48.1 million as of Sep 30, 2012. The increase was primarily due to the acquisition of PCI Animal Health in the first quarter.


Outlook Tweaked


Following a strong second quarter, MWI Vet revised its guidance for fiscal 2013. The company now expects to report revenues of $2.32–$2.36 billion compared with the prior outlook of $2.31–$2.36 billion. The updated outlook reflects annualized growth of 11.8% to 13.7%. The current Zacks Consensus Estimate of $2.37 billion lies outside the guidance range.


MWI Vet presently envisages EPS in the range of $4.79–$4.89 compared with $4.73–$4.87 earlier, with annualized growth of 13.2%−15.6% for the ongoing fiscal. The current Zacks Consensus Estimate of $4.86 is within the company’s guidance range.  


Our Take


Even amid a low-growth environment, MWI Vet continues to post double-digit growth as reflected in its second quarter earnings, which surpassed the Zacks Consensus Estimate. However, the challenging scenario in the animal health market led to a sequential slowdown in revenues which missed our projections. 


Nonetheless, margin expansion and higher vendor rebates are material upsides in the reported quarter. Evidently, MWI Vet has the strength to deliver consistent growth performance going forward.


Currently, the stock carries a Zacks Rank #2 (Buy). Other Zacks Rank #2 healthcare stocks are The Cooper Companies ( COO), Accuray Inc. ( ARAY) and Abiomed Inc. ( ABMD). 

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