MWI Veterinary Supply (MWIV) reported third quarter 2011 EPS of 91 cents, comprehensively beating the Zacks Consensus Estimate of 80 cents and 23% higher than the year-ago earnings of 74 cents. The company reported revenues of $410.7 million, exceeding the Zacks Consensus Estimate of $388 million and up 18.1% year over year. The company generated 18.9% of revenue growth in the U.S and 14.1% year over year in UK, consisting of 4.3% organic growth and 9.8% growth related to foreign currency exchange.
During the quarter, US revenues from existing customers represented 40% of the growth. Commissions grew 49.3% year over year to $6.5 million primarily due to an incentive from one of MWIV’s vendors as well as an increase in commission rates and gross billings from agency contracts.
In the reported quarter, Internet sales to independent veterinary practices and producers in the US rose 40% compared with the year-ago quarter. Product sales from Internet generated 36% of the total revenue in US during the quarter.
Gross profit increased 23.1% to $54.1 million during the quarter leading to 60 basis points (bps) expansion in gross margin to 13.2% compared with the year-ago period. The increase was due to the incentive from MWIV’s vendor and an overall increase in product margin, partially offset by a decrease in vendor rebates. Vendor rebates during the quarter decreased by approximately $205,000.
In the reported quarter, MWIV’s operating income increased 24.1% to $18.7 million, which resulted in a 22-bp rise in operating margin to 4.55%. Selling, General and Administrative (SG&A) expenses climbed 22.7% to $33.7 million primarily due to higher compensation costs from increased headcount to support the revenue growth, as well as an increase in bank service fees related to customer credit card usage. SG&A expenses, as a percentage of total revenue, were 8.2% in the quarter.
MWIV exited the quarter with cash balance of $989,000 compared with $911,000 at the end of September 2010. The company also had $13.9 million outstanding in credit facilities compared with $3.8 million by the end of September, 2010 due to the funding of investing activities, which included the Nelson acquisition, purchase of an office building in Idaho, an investment in a technology-based inventory management business and equipment for the company’s new distribution center in California.
Based on a strong third quarter, MWIV raised its guidance for fiscal 2011. While revenue guidance has been increased to $1.53 –$1.54 billion (previous guidance: 1.49–$1.52 billion), EPS is expected in the range of $3.37– $3.40 ($3.21–$3.27). The revenue guidance represents growth of 24% to 25% compared with fiscal 2010.
We are encouraged by the momentum maintained by MWI Veterinary Supply over the past few years. The company, which is one of the leading distributors of animal health products to veterinarians across the US, has acquired many companies to either expand its presence in areas where it has low market share or for increasing its focus in new areas. Besides, the company has witnessed substantial market share gain amidst a low-growth environment. Although the competitive landscape is tough, presently we are ‘Neutral’ on the stock.
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