Why Is Idexx (IDXX) Down 14.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Idexx Laboratories (IDXX). Shares have lost about 14.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Idexx due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
IDEXX Q1 Earnings Surpass Estimates, Margins Down
IDEXX Laboratories posted first-quarter 2022 earnings per share of $2.27, reflecting a 3.4% year-over-year decline. However, the figure surpassed the Zacks Consensus Estimate by 0.9%.
Comparable constant-currency EPS of $2.24 in the first quarter of 2022 reflects year-over-year growth of 2.8%.
Revenues in Detail
First-quarter revenues grew 7.6% year over year to $836.5 million. Organically, growth was 9%. The metric lagged the Zacks Consensus Estimate by 0.5%.
The year-over-year upside was primarily driven by 19% reported and 22% organic growth in CAG Diagnostics capital instrument revenues. Veterinary software, services and diagnostic imaging systems revenues increased 34% as reported and 13% organically. Overall revenue growth was also supported by 7% reported and 8% organic revenue growth in the Water business.
Segmental Analysis
IDEXX derives revenues from four operating segments — CAG, Water, Livestock, Poultry and Dairy (LPD), and Other.
In the first quarter, CAG revenues rose 10% on a reported basis (up 10% organically) year over year to $761.2 million. The Water segment’s revenues also grew 7% (up 8% organically) year over year to $36.4 million. However, LPD revenues dropped 21% (down 19% organically) to $30.9 million. Revenues in the Other segment fell 30.1% on a reported basis to $8.1 million.
Margins
Gross profit in the first quarter rose 5.9% to $498.8 million. Gross margin contracted 91 basis points (bps) to 59.6%, with a 10.1% rise in the cost of revenues to $337.8 million.
Sales and marketing expenses rose 15.2% to $132.3 million, while general and administrative expenses were down 10.1% to $77.9 million.
Research and development expenses climbed 6.9% to $40.2 million.
Overall, operating profit in the reported quarter was $248.3 million, reflecting an improvement of 0.3% year over year. Despite that, operating margin in the quarter contracted 215 bps to 29.7%.
Financial Position
IDEXX exited the first quarter of 2022 with cash and cash equivalents of $204.6 million compared with $144.5 million recorded at the end of the fourth quarter of 2021. Total debt (including current portion) at the end of the first quarter of 2022 was $773.4 million compared with total debt of $850.2 million at the end of the fourth quarter of 2021.
Cumulative net cash provided by operating activities at the end of the first quarter of 2022 was $114.7 million compared with $124.4 million a year ago.
2022 Guidance
The company has re-calibrated its full-year 2022 outlook anticipating near-term impacts on veterinary clinical visits from factors, including constraints on vet clinic capacity as well as projected revenue reductions related to the war in Ukraine and the impact of the recent strengthening of the U.S. dollar.
For 2022, the company now expects revenue growth in the range of $3.39-$3.47 billion, indicating growth of 5.5-8% on a reported basis (organic growth of 7.5-10%). This compares with the previously guided range of $3.50-$3.56 billion The Zacks Consensus Estimate for the same is currently pegged at $3.54 billion.
CAG Diagnostics’ recurring revenues are expected to grow 6.5-8.5% on a reported basis and 9-11% on an organic basis. This compares with the previously guided range of 10.5-12% on a reported basis and 12-14% on an organic basis.
Further, IDEXX’s full-year EPS guidance is now pegged in the range of $8.11-$8.35, indicating a decline of 6-3% on a reported basis. This compares with the previously guided range of $9.27-$9.59. The Zacks Consensus Estimate for full-year EPS is currently pegged at $9.44.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -7.85% due to these changes.
VGM Scores
At this time, Idexx has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Idexx has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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