A month has gone by since the last earnings report for Idexx Laboratories (IDXX). Shares have added about 2.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Idexx 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.
IDEXX Earnings Beat Estimates in Q2, Margins Rise
IDEXX posted second-quarter 2020 earnings per share of $1.72, reflecting a 20.3% year-over-year rise. The figure surpassed the Zacks Consensus Estimate by 43.3%. Comparable-constant-currency EPS growth was 23%, which excludes the impact of changes in foreign exchange rates and tax benefits of share-based compensation activity.
Revenues in Detail
Second-quarter revenues grew 2.8% year over year to $637.6 million. Organically, growth was 3.6%. The metric exceeded the Zacks Consensus Estimate by 9.9%.
The year-over-year upside was primarily driven by strong global gains in CAG Diagnostics’ recurring revenue growth of 7% on both reported and organic basis. High single-digit organic gains in the United States and international markets also drove the top line. OPTI Medical Systems COVID-19 human PCR testing contributed about 1% to the second-quarter top line. However, second-quarter results were impacted by a fall in new CAG instrument placement levels and Water business revenues, including pressure in non-compliance water testing, impacted by factors related to the COVID-19 pandemic.
Segmental Analysis
IDEXX derives revenues from four operating segments — CAG; Water; LPD; and Other.
In the second quarter, CAG revenues rose 3.4% (up 3.8% organically) year over year to $566.1 million. The Water segment’s revenues were down 19.1% (down 16.2% organically) year over year to $28.1 million. LPD revenues fell 2.6% (up 1.7% organically) to $32.2 million. Revenues at the ‘Other’ segment grew 127.8% both on reported and organic basis to $11.1 million.
Margins
Gross profit in the second quarter rose 6% to $379.3 million. Gross margin expanded 179 basis points (bps) to 59.5% despite a 1.5% fall in cost of revenues to $258.3 million.
Sales and marketing expenses fell 7.1% to $94.2 million, while general and administrative expenses moved up 0.5% to $60.3 million. Additionally, research and development expenses declined 1.9% to $31.6 million. Operating profit in the reported quarter was $193.2 million compared with $164.3 million in the year-ago period. Operating margin in the quarter expanded 382 bps to 30.3%.
Financial Position
IDEXX exited the second quarter with cash and cash equivalents of $105.3 million compared with $81.4 million at the end of the first quarter. Long-term debt for the company at the end of the second quarter was $899.6 million compared with $697.4 million at the end of the first quarter.
Cumulative net cash provided by operating activities at the end of the second quarter was $260.9 million compared with $228.4 million in the year-ago period.
2020 Outlook
Uncertainties regarding the duration and impact of the coronavirus pandemic on veterinary service providers have compelled IDEXX Laboratories to refrain from providing any guidance for the year. It did not even provide any guidance for the third quarter as well.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 8.97% due to these changes.
VGM Scores
Currently, Idexx has a great Growth Score of A, though it is lagging a lot on the Momentum Score 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 B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Idexx has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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