IDEXX Laboratories (IDXX) Up 6.4% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for IDEXX Laboratories, Inc. (NASDAQ:IDXX) . Shares have added about 6.4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is IDXX due for a pullback? 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 catalysts.

Recent Earnings

IDEXX Laboratories reported first-quarter 2018 earnings per share (EPS) of $1.01, up 31.2% year over year on a reported basis and 32% on a comparable constant exchange rate (CER) basis. The current Zacks Consensus Estimate for adjusted EPS is pegged at 93 cents.

Per the company, the upside in reported EPS was driven by revenue growth, solid operating margin gains and impressive benefits from the U.S. tax reform.

Revenues in Detail

Revenues rose 16.4% year over year (up 12.3% on organic basis) to $537.7 million, surpassing the Zacks Consensus Estimate of $526.2 million by 2.2%.

The upside was driven by strong global gains in Companion Animal Group (“CAG”) Diagnostics recurring revenues, including double-digit organic revenue gains across consumable and reference lab as well as strong acceptance of rapid assays and veterinary software, services and diagnostic imaging systems. Further, steady overall growth contributed to the top line.

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 16.8% (up 13.1% organically) year over year to $470.8 million. Water segment’s revenues were up 16.2% from the prior-year quarter (up 11.8% organically) to $29.1 million. LPD revenues grew 10% (up 2% organically) to $32.2 million. Revenues at the Other segment rose 23.6% (up 22.3% organically) to $5.4 million.

Margins

Gross profit increased 17.4% to $303.1 million in the reported quarter. Further, gross margin expanded 50 basis points (bps) to 56.4% despite a 15.1% rise in cost of revenues to $234.6 million.

Sales and marketing expenses rose 14.8% to $100.1 million, while general and administrative expenses increased 15.1% to $60.9 million. Research and development expenses rose 12.4% to $29 million. Operating margin in the quarter improved 100 bps to 21%.

Financial Position

IDEXX exited the first quarter of 2018 with cash and cash equivalents of $159.2 million, compared with $187.7 million at the end of 2017. Net cash provided by operating activities in the reported quarter was $34.9 million, compared with $31.3 million in the year-ago quarter.

2018 Guidance

IDEXX has reaffirmed the 2018 revenue outlook at $2,205-$2,245 million. The company has updated the 2018 revenue organic growth guidance to 10.5-12.5% from the previous 9.5-11.5%. However, IDEXX continues to expect revenue growth of 12-14% on a reported basis. The Zacks Consensus Estimate for 2018 revenues is pegged at $2.22 billion, within the guided range.

Management also raised the EPS guidance to $4.06-$4.20 from the earlier $4.04-$4.18, supported by continued operating margin expansion aligned with its long-term goals. The updated outlook represents EPS growth of 38-43% on a reported basis compared with 37-42% stated previously. The Zacks Consensus Estimate for 2018 adjusted EPS is pegged at $4.11.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to three lower.

IDEXX Laboratories, Inc. Price and Consensus

VGM Scores

At this time, IDXX has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, IDXX has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.