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MWI Veterinary Up on Q1 Earnings Beat; Revs Miss

Zacks Equity Research

MWI Veterinary Supply, Inc. (MWIV) reported first-quarter fiscal 2014 earnings per share (EPS) of $1.45, up 9.8% from the year-ago figure of $1.32. The figure also beat the Zacks Consensus Estimate of $1.41 by 2.8%.

Following the earnings announcement, the company’s share price rose 1.51% to $163.62 till the last trading session.

Revenues in Detail

Revenues in the first quarter increased 19.9% year over year to $687.3 million. However, the top line lagged the Zacks Consensus Estimate of $697 million. Revenues from the IVESCO business amounted to $75.1 million (for two months during the quarter). 

Revenue growth in the U.S. was 9.6% on a year-over-year basis after excluding the impact of the acquisition of IVESCO (closed on Nov 1, 2013). Growth came on the back of robust contributions from both the companion animal and production animal market. Further, it also benefited from the rollout of its Diagnostics Unlimited program which increased 46.4% year over year to $41 million. Internet sales to independent veterinary practices and producers climbed 24.5% year over year.

The growth in flea, tick and heartworm products represented another 1.2% of revenue growth. Additional new customers resulting from the acquisition of the PCI Animal Health business contributed 0.3% to growth in the U.S. Moreover, revenues from Veterinary Pharmacy programs (after excluding IVESCO) in the U.S. grew 17.2% to $68.8 million for the reported quarter.

Revenues from the U.K. decreased 8.3% year over year as organic decrease of 9% was partially offset by a 0.7% increase related to favorable foreign exchange impact.

MWI Veterinary’s pharmacy fulfillment business grew 17% year over year to $68.8 million. While the total number of Micro Weigh machine placements was nine units during the quarter, its placements into dairy customers were four units. As of Dec 31, 2013, Micro Weigh machine base was 229 units. (Figures reported are net of IVESCO).

Operational Update

MWI Veterinary’s commissions decreased 12.3% year over year to $3.8 million reflecting transition to products being sold under buy-sell relationships. Vendor rebates increased $2.6 million from the year-ago period.

Gross profit improved 15.9% to $89.1 million in the quarter. Cost of products sold was up 20.6% to $598.2 million. Moreover, gross margin contracted 50 basis points (bps) year over year to 12.9% in the quarter.

Despite the 18.1% rise in selling, general and administrative (SG&A) expenses to $56.1 million, MWI Veterinary’s adjusted operating income climbed 12.2% to approximately $33 million. The increase in SG&A expenses can be attributed to the acquisition of IVESCO during the reported quarter. However, operating margin contracted 30 bps to 4.8% in the quarter.

Financial Update

MWI Veterinary exited the first quarter with cash balance of $503,000 compared with $953,000 at the end of fiscal 2013. 


MWI Veterinary reaffirmed the business outlook for fiscal 2014. The company envisages revenues of $2.89–$2.94 billion reflecting annualized growth of 23%−25%. The current Zacks Consensus Estimate of $2.95 billion is approximately in line with the higher end of the guidance range.

EPS is forecasted in the range of $5.47–$5.67. The EPS outlook reflects annualized growth of 10.5%−14.5% in fiscal 2014. The current Zacks Consensus Estimate of $5.61 lies near the higher end of the company’s guidance range.

Our Take

MWI Veterinary reported an overall decent fiscal first quarter with an earnings beat. Although revenues lagged the Zacks Consensus Estimate, balanced segmental growth and strong growth trends are encouraging. We believe MWI Veterinary is well positioned to take advantages of certain tailwinds like improving drought conditions in the production animal market in the U.S., the IVESCO acquisition which is expected to be accretive to fiscal 2014 earnings and the company’s value-added services which are delivering encouraging results.

Given the stellar earnings performance, the stock presently carries a Zacks Rank #2 (Buy). Other stocks such as Align Technology Inc. (ALGN), Cardinal Health, Inc. (CAH) and CR Bard Inc. (BCR) also appear impressive. All these stocks also carry a Zacks Rank #2.

Read the Full Research Report on BCR
Read the Full Research Report on ALGN
Read the Full Research Report on CAH
Read the Full Research Report on MWIV

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