Abaxis (ABAX) Beats Earnings And Revenue Estimates In Q3

Abaxis, Inc. (NASDAQ:ABAX) reported third-quarter fiscal 2018 adjusted earnings per share of 31 cents, beating the Zacks Consensus Estimate by 6.9%. Moreover, adjusted earnings rose 3.3% from the year-ago 30 cents.

Total Revenue

In the fiscal third quarter, Abaxis recorded revenues of $59.7 million, reflecting an increase of 13.1% from a year ago. The top line also surpassed the Zacks Consensus Estimate of $58 million. Foreign currency exchange fluctuations had a favorable 1% impact on the top line.

Segments in Detail

Revenues from North America (accounting for 77.7% of total revenues) rose 11.8% to $46.4 million in the reported quarter. Revenues from the international markets (accounting for the rest) improved 17.9% to $13.2 million.

Abaxis operates through three main segments — Veterinary, Medical and Other. In the reported quarter, Veterinary sales accounted for 81.1% of total sales, Medical contributed 17.1% while the remaining 1.8% was generated from Other.

Veterinary market revenues improved 12% year over year to $48.4 million, driven by a 12% uptick in veterinary consumable revenues to $37.9 million. Veterinary instrument revenues were up 12% year over year to $8.7 million.

Revenues from the medical market were up from $8.7 million in the same quarter last year to $10.2 million led by strength in Piccolo instrument as well as medical rotors. Also, revenues at the North American medical division totaled $7 million, up 25% year over year. On a global basis, Abaxis sold 228 Piccolos in the quarter compared with 212 a year ago.

ABAXIS, Inc. Price, Consensus and EPS Surprise

Abaxis exhibited strong consumable growth, up 13% year over year to $45.5 million in the quarter. Within the consumable product lines, total rotor revenues were $31.9 million, up 13% from $28.2 million in the year-ago quarter. On a global basis, Abaxis sold 2.57 million rotor units in the quarter under review, up 13% from 2.28 million units in the year-ago quarter. Hematology reagents, rapid assays, i-STAT cartridges, coagulation cartridges and urine analysis strips also drove growth in veterinary consumable revenues.With solid contributions from feline test and test for canine specific lipase, revenues from rapid assay were major contributors to the top line in the reported quarter.

Moreover, total instruments’ sales rose 12% to $10.5 million on a rise in the sales of haematology, i-STAT, coagulation and Piccolo instruments. Also, impressive revenues from VetScan UA, a hand-held urine chemistry analyzer launched last September, contributed significantly to the top line.

Operational Updates

Gross profit in the third quarter rose 9.5% to $32.2 million. Gross margin contracted 180 basis points (bps) to 53.9%.

Research and development expenses increased 8.3% year over year to $5.2 million and sales and marketing expenses rose 29.2% to $13.7 million. General and administrative expenses also rose 50% to $4.8 million. The resultant operating income was down 20.4% to $8.6 million in the quarter and operating margin declined 610 bps to 14.4%.

Financial Update

Abaxis exited the fiscal third quarter with cash, cash equivalents and short-term investments of $161.6 million, compared with $148.8 million in the fiscal second quarter.

Our Take

Abaxis exited the fiscal third quarter on a promising note. However, a decline in gross and operating margin is a concern. Meanwhile, a year-over-year increase in revenues buoys optimism. We are upbeat about the company’s solid consumable and instrument sales growth along with strength in the Medical and Veterinary market segments.

Meanwhile, we are encouraged to note that the company is initiating new sales and marketing strategies. In this regard, the company recently received approval from USDA, Center for Veterinary Biologics, for a combination test for heartworm, lyme, ehrlichia and anaplasma — VetScan FLEX4 Rapid Test. Moreover, the company plans to sell and introduce this product at the VMX conference in February. Abaxis plans additional launches in fiscal 2018, including the urine sediment analyzer. According to the company, these products will drive growth over the long haul.

Zacks Rank & Key Picks

Abaxis has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical sector are ResMed (NYSE:RMD) , PerkinElmer (NYSE:PKI) and Accuray (NASDAQ:ARAY) . All the three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ResMed posted second-quarter fiscal 2018 adjusted earnings of $1, up 36.9% from the prior-year quarter. Revenues in the reported quarter increased 13.4% year over year (up 11% at constant exchange rate or CER) to $601.3 million.

PerkinElmerreported fourth-quarter 2017 adjusted earnings of 97 cents. The company reported adjusted revenues of approximately $641.6 million, surpassing the year-ago quarter’s $567 million.

Accuray reported a loss of 6 cents in the second quarter of fiscal 2018, 5 cents narrower than the year-ago figure. Total revenues increased 15% year over year to $100.3 million.

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