IDEXX Laboratories (IDXX) Beats Q1 Earnings, Raises View

IDEXX Laboratories Inc. (NASDAQ:IDXX) recorded first-quarter 2017 earnings per share (EPS) of 77 cents, up 51% (up 53% at constant exchange rate or CER) year over year on a reported basis. The Zacks Consensus Estimate for earnings was pegged at 61 cents per share.

Strong top-line growth in the first quarter drove the upside in earnings.

Revenues in Detail

IDEXX’s first-quarter 2017 revenues rose 11% year over year (same on organic basis) to $462.0 million, beating the Zacks Consensus Estimate of $455 million.

The year-over-year increase was driven by strong global gains in Companion Animal Group (CAG) Diagnostics recurring revenues, including double-digit organic revenue gains across consumable, reference lab and rapid assay revenues, as well as continued expansion of IDEXX's premium instrument installed base.

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 13% (13.4% organically) year over year to $403.2 million. The Water segment’s revenues were up 6.5% from the prior-year quarter (7.3% organically) to $25.0 million. LPD revenues, however, decreased 5% (down 4.6% organically) to $29.3 million. Meanwhile, revenues at the Other segment deteriorated 20% (down 19.9% organically) to $4.4 million.

Margins

Gross profit increased 13.5% to $258.2 million in the reported quarter. However, gross margin expanded 139 basis points (bps) to 55.8% despite a 7.3% rise in cost of revenue to $203.8 million.

Sales and marketing expenses increased 9.3% to $87.2 million while general and administrative expenses rose 7.3% to $52.9 million. Research and development expenses increased 4.7% to $25.7 million. Overall, operating margin in the quarter improved 229 bps to 19.9%.

Financial Position

IDEXX exited the first quarter of 2017 with cash and cash equivalents of $160.4 million, up from $154.9 million at the end of fiscal 2016. As of Mar 31, 2017, net operating cash flow was $31.2 million, compared with $26.9 in the prior year.

2017 Guidance

IDEXX raised its 2017 revenue outlook by $15 million to the range of $1,925--$1,950 million, reflecting organic revenue growth expectations between 9.5% and 11%. The Zacks Consensus Estimate for 2017 revenues is pegged at $1.92 billion, within the guided range.

Management also raised its EPS guidance to $2.95--$3.11 per sharefrom the earlier range of $2.85–$3.01, supported by continued operating margin expansion aligned with its long-term goals. The updated outlook represents EPS growth of 21%--27% on a reported basis.

Our Take

IDEXX posted an impressive first quarter with earnings and revenues improving year over year at a significant rate. Solid organic revenue growth buoys optimism. The company’s raised EPS guidance for 2017 is also encouraging.

The stellar quarterly performance was driven by the company’s companion animal business. The companion animal market fundamentals remain solid with tremendous global runway for growth. Management’s unique innovation-based, multi-modality global strategy, enabled by enhanced commercial capability, accelerated recurring CAG Diagnostics growth. The company’s raised EPS guidance for 2017 also increases investors’ confidence on the stock.

However, foreign currency fluctuations are expected to continue to hurt the company’s operating results, although lower than the extent expected earlier.

Zacks Rank & Other Key Picks

IDEXX currently has a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader Medical space include Inogen, Inc. (NASDAQ:INGN) , ZELTIQ Aesthetics, Inc. (NASDAQ:ZLTQ) and Hill-Rom Holdings, Inc. (NYSE:HRC) . While Inogen and ZELTIQ Aesthetics sport a Zacks Rank #1 (Strong Buy), Hill-Rom carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen gained 53.4% in the last one year, compared with the S&P 500’s gain of 15.6%. The company reported a stellar four-quarter positive average earnings surprise of over 49.08%.

ZELTIQ Aesthetics surged 88.9% in the last one year, in comparison to the S&P 500. Its four-quarter average earnings surprise was a positive 12.03%.

Hill-Rom gained over 52.7% in the past one year, better than the S&P 500 mark. It posted a trailing four-quarter positive average earnings surprise of 3.1%.

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