IDEXX Laboratories Inc. IDXX reported fourth-quarter 2015 earnings per share (EPS) of 48 cents, beating the Zacks Consensus Estimate by 9.1%. The quarter’s EPS also improved from the year-ago quarter adjusted number by 2.1%, after accounting for a negative 3 cents per share impact related to net changes in foreign exchange.The quarter's EPS was up 77.8% year over year on a reported basis.
Full-year 2015 adjusted EPS came in at $2.11, up 5.5% from 2014.
Revenues in Detail
IDEXX’s fourth quarter revenues improved 14% year over year to $399.7 million and steered ahead of the Zacks Consensus Estimate of $397 million. Normalized organic revenue growth was 11%, partly driven by strong growth in the Companion Animal Group (CAG) segment, including 12.5% normalized organic growth in CAG Diagnostics recurring revenues and continued strong gains in instrument placements.
Full year revenues came in at $1.6 billion, demonstrating annualized growth of 8% on normalized organic revenue growth of 11%.
Region-wise, in the reported quarter, IDEXX experienced a 25.1% improvement in the U.S. amounting to revenues of $238.6 million (up 13% on normalized organic basis). In the international market, the company's sales declined 0.1% year over year to $161.1 million. Normalized CAG organic revenue growth was 12% in international markets, reflecting continued strong gains in consumable sales across major regions, including Europe, benefiting from record levels of new instrument placements.
Segment Analysis
IDEXX derives revenues from four operating segments: CAG; Water; Livestock, Poultry and Dairy (LPD); and Other.
In the fourth quarter, revenues improved 22.3% to $336.1 million organically in CAG, driven by 16% normalized organic growth in IDEXX VetLab consumable revenues. The upside reflects solid volume gains and benefits from margin capture, 11% organic growth in reference laboratory diagnostic and consulting services revenues; supported by continued strong double-digit reference lab revenue gains in the US.
The Water segment’s revenues grew 9.9% organically to $24.2 million primarily boosted by worldwide increases in core coliform and E.coli products, as well as benefits from the launch of Quanti-Tray Sealer PLUS product.
Fourth-quarter LPD revenues increased 1.9% organically to $33.4 million. Growth in new products worldwide and strong poultry and swine sales in emerging markets were partially offset by lower livestock services revenues in Australia and lower bovine revenues in Europe.
Revenues in the 'Other' segment were up 17.1% organically to $6.1 million.
Margin
Gross profit increased 19.5% to $217.6 million in the reported quarter. Gross margin expanded 271 basis points (bps) to 54.5% on lower product costs and benefits from moderate net price increases offset by business mix impacts from very strong instrument sales, which offset benefits from lower product costs.
Sales and marketing expenses were down 1% at $76.5 million while general and administrative expenses increased 7.8% to $48.8 million. Research and development expenses rose 2.5% to $25.5 million.
Operating margin in the quarter expanded 685 bps to 16.7%.
Financial Position
IDEXX exited the fiscal with cash and cash equivalents of $128.9 million, compared with $322.5 million at the end of 2014. Full year net operating cash flow was $216.4 million, compared to $235.8 million a year ago.
During the reported quarter, the company bought back 1.3 million shares for $93 million. The company is left with 6.8 million shares under its current repurchase authorization.
Outlook for 2016
In view of the ongoing foreign exchange headwind, IDEXX has updated its full-year 2016 outlook. Management currently expects revenues of $1.69–$1.71 billion in 2016, reflecting normalized organic revenue growth of approximately 8–9% (reported 6–7%). Adjusted EPS is expected in the band of $2.10–$2.17, reflecting annualized growth of 0–3% (adjusted); 12–15% (constant currency adjusted) and 2–6% (reported).
Our Take
We believe IDEXX’s robust worldwide commercial capabilities and best-in-class products, which include the next-generation chemistry analyzer – Catalyst One, are the key growth drivers over the near term.
However, foreign currency fluctuations are expected to consistently hamper IDEXX’s revenue growth, operating profits and EPS growth, through all the quarters of 2016.
Zacks Rank
Currently, IDEXX carries a Zacks Rank #4 (Sell). Some better-ranked medical instrument stocks are ABIOMED, Inc. ABMD, Accuray Incorporated ARAY and Alphatec Holdings, Inc. ATEC. All the three stocks carry a Zacks Rank #2 (Buy).
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