Abaxis (ABAX) Q1 Earnings Miss Estimates, Sales Up Y/Y

Abaxis, Inc. (NASDAQ:ABAX) – a global provider of point-of-care blood analyzers, reported its first-quarter fiscal 2017 earnings per share (EPS) of 30 cents, which missed the Zacks Consensus Estimate by 9.1%.

The quarter’s EPS also dropped by a penny from the year-ago comparable figure.

The downside in the bottom-line results can primarily be attributed to a double-digit increase in operating expenses, a result of management’s decision to increase investments in research and development (R&D) and international sales and marketing (S&M).

Total Revenue

In the fiscal first quarter, Abaxis delivered revenues of $57.7 million, reflecting an 8.7% year-over-year increase. The top line however missed the Zacks Consensus Estimate of $59 million.

Notably, the mid-single-digit growth witnessed in its medical market segment and the double-digit growth in veterinary market segment collectively drove the high-single digit growth in Abaxis’ overall revenue during the first quarter.

Foreign currency exchange rate fluctuations had almost negligible impact on Abaxis’ top line growth, as currencies reduced total revenue growth by only 0.3% in the quarter.

Segments in Detail

In the quarter, on a geographic-region basis, revenues from North America (accounting for 81.1% of total revenue) grew 11% to $46.8 million, while revenues from the international market (accounting for the rest) rose 1.3% to $10.9 million.

Abaxis operates under three main segments, namely Veterinary, Medical and Other. In the reported quarter, Veterinary sales comprised 82.7% of total sales; Medical sales contributed 15.8% while the remaining 1.5% was generated from Other.

Veterinary market revenues improved 10% year over year to $47.7 million, driven by a 6% growth in veterinary consumable revenues and 27% growth in veterinary instrument revenues. Revenues from medical market segment grew 5% year over year at $9.1 million, on account of 11% increase in medical rotor revenue while Piccolo instrument revenues dropped 19%. Revenues from the Other segment increased 6.2% to $0.87 million.

Abaxis also exhibited a strong consumable growth, up 7% year over year to $44.7 million, accounting for approximately 77.5% of the company’s total worldwide revenues in the quarter. Total Instruments sales, also, increased 5% to $11.1 million.

Operational Updates

Fiscal first-quarter gross profit rose 9% to $32 million. However, gross margin expanded only 10 basis points (bps) to 55.5%, affected by sales mix during the quarter.

R&D expenses increased 10.8% year over year to $5.2 million, while S&M expenses rose 11.7% to $11.8 million. General and administrative expenses also rose 21.5% to $4.2 million. Although the resultant operating income came in almost flat at $10.7 million for the quarter, operating margin declined 140 bps to 18.6% owing to higher operating expenses.

Financial Update

Abaxis exited fiscal first quarter with cash, cash equivalents and short and long-term investments of $153 million, up from $129.8 million in the prior quarter.

Meanwhile, Abaxis' management has approved a $30 million increase to its existing share repurchase program, making the total amount available for repurchase to $54 million at present.

Our Take

Abaxis’ first-quarter fiscal 2017 results disappointed us, with the company squarely missing the Zacks Consensus Estimate. However, on a year-over-year comparable basis a strong outcome was observed, with global sales improving across all Abaxis’ segments as well as in geographical bases. Moreover a specific rebound in Europe’s veterinary rotor units’ sales is encouraging as Abaxis had displayed a dreary performance in this space in the past two quarters.

Abaxis faced a challenging year over year comparison in the Asia Pacific region this quarter. But for the remaining quarters of fiscal 2017, management offered an improved outlook anticipating increased sales of veterinary rotors in the region. Besides, the strong cash position of Abaxis is evident from management’s decision to increase the share repurchase fund, which all the more buoys our optimism for this stock.

Zacks Rank

Abaxis currently holds a Zacks Rank #3 (Hold). Some better-ranked medical stocks are Boston Scientific Corp. (NYSE:BSX) , NuVasive, Inc. (NASDAQ:NUVA) and Lonza Group Ltd (OTC:LZAGY) . All these stocks sport a Zacks Rank #1 (Strong Buy).