IDEXX Laboratories (NASDAQ: IDXX) reported first-quarter earnings on Friday with solid revenue and earnings growth as the animal diagnostic company dominates its competitors.
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IDEXX Laboratories results: The raw numbers
Data source: IDEXX Laboratories.
What happened with IDEXX Laboratories this quarter?
- Revenue from IDEXX's companion animal products grew 13% year over year.
- The number of premium analyzers placed globally increased 18%. That ever-increasing installed base of machines is driving consumables used to run the tests, which grew 14% year over year.
- IDEXX's reference lab -- where it tests samples in-house rather than selling veterinarians machines and testing supplies -- increased revenue by 13% year over year as vets continue to use the relatively new SDMA kidney test.
- Sales of products for farm animals fell 5% year over year. Management blamed "declines in herd health screening of Australia and New Zealand dairy cattle for export to China and pressure on the Dairy business." Fortunately farm animal products are becoming a smaller portion of IDEXX's revenue stream, so the decline doesn't affect the overall revenue growth much.
- Revenue from water testing business also dragged down the overall growth slightly, but at least it was up 6% year over year.
- While the earnings growth is impressive, $0.12 per share of the increase came from the adoption of new accounting guidance related to tax benefits from share-based compensation. Excluding that and currency changes, earnings per share were up a still-very-impressive 29% year over year.
Image source: IDEXX Laboratories.
What management had to say
There's always a worry that new machine sales are just replacing old ones, which benefits short-term instrument sales, but doesn't have that big of an effect on long-term disposables used in the machines. Fortunately, that doesn't seem to be the case, according to Brian McKeon, IDEXX Laboratories' CFO, EVP, and treasurer: "In North America, we placed 388 Catalysts in Q1, with 304, or 78% are competitive or greenfield accounts."
It's great that IDEXX is taking business away from competitors, but how long can that last? Jonathan Ayers, IDEXX Laboratories' chairman, CEO, and president, doesn't think the company is anywhere near saturating the market:"At the end of Q1, our active installed base of Catalysts outside of North America has grown cumulatively to over 11,000 instruments and customers, and yet we believe the potential number of additional customers is roughly 5x that amount, and the number of Companion Animal practices is growing every year."
After the solid first quarter, management raised revenue guidance for the year by $15 million on either side of the range to $1.925 billion to $1.950 billion with about $5 million of the increase coming from better currency exchange rates.
Unfortunately, the earnings gain from the increase in revenue will be knocked out by an expected increase in the company's tax rate. Nevertheless, management expects earnings per share to be $0.10 higher than previously estimated due to the new share-based compensation accounting guidance. Management now expects earnings of $2.95 to $3.11 per share, which represents an increase of 21% to 27% compared to last year.
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