Idexx (IDXX) Down 4.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Idexx Laboratories (IDXX). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Idexx due for a breakout? 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 Q3 Earnings Beat Estimates, 2021 View Updated

IDEXX Laboratories posted third-quarter 2021 earnings per share of $2.03, reflecting a 20.1% year-over-year rise. The figure surpassed the Zacks Consensus Estimate by 7.9%.

Comparable constant-currency earnings per share of $1.96 in the third quarter of 2021 reflects year-over-year growth of 12%.

Revenues in Detail

Third-quarter revenues grew 12.3% year over year to $810.4 million.

Organically, growth was 10%. The metric surpassed the Zacks Consensus Estimate by 2.2%.

The year-over-year upside was primarily driven by 13% reported and 11% organic growth in global Companion Animal Group (CAG) Diagnostics’ recurring revenues and 34% reported and 33% organic growth in CAG Diagnostics capital instrument revenues. Overall revenue growth was also supported by 15% reported and 13% organic revenue growth in the Water business.

Segmental Analysis

IDEXX derives revenues from four operating segments — CAG, Water, Livestock, Poultry and Dairy (LPD), and Other.

In the third quarter, CAG revenues rose 15% (up 13% organically) year over year to $732.5 million. The Water segment’s revenues also grew 15% (up 13% organically) year over year to $38.1 million. However, LPD revenues dropped 21% (down 23% organically) to $29.1 million. Revenues at the Other segment fell 21.2% on a reported basis to $10.7 million.

Margins

Gross profit in the third quarter rose 11.9% to $472.9 million. However, gross margin contracted 19 basis points (bps) to 58.4% on a 12.8% rise in the cost of revenues to $337.5 million.

Sales and marketing expenses rose 15% to $124.4 million, while general and administrative expenses were down 21.8% to $82.1 million. Research and development expenses climbed 7.8% to $40.4 million.

Overall, operating profit in the reported quarter was $225.9 million, reflecting an improvement of 31.5% year over year. The operating margin in the quarter expanded 407 bps to 27.9%.

Financial Position

IDEXX exited the third quarter of 2021 with cash and cash equivalents of $145.2 million compared with $232.1 million recorded at the end of second-quarter 2021. Total debt (including current portion) at the end of the third quarter of 2021 was $853 million compared with total debt of $905.1 million at the end of the second quarter.

Cumulative net cash provided by operating activities at the end of the third quarter of 2021 was $545.6 million compared with $429.1 million a year ago.

2021 Guidance

The company narrowed its revenue expectation for the year to the range of $3,185-$3,200 million, suggesting year-over-year growth of 17.5-18% on a reported and 15.5-16% on an organic basis. This compares with the previously-provided revenue guidance of  $3,170-$3,205 million, which indicated growth of 17-18.5% on a reported and 14.5-16% on an organic basis. The Zacks Consensus Estimate for the same is currently pegged at $3.19 billion.

CAG Diagnostics’ recurring revenues are now expected to grow 18.5-19.5% on a reported basis and 17-17.5% on an organic basis (narrowed from the previously-issued guidance of growth of 18-19.5% on a reported basis and 16-17.5% on an organic basis).

Further, IDEXX raised the full-year earnings per share guidance to the range of $8.30-$8.38, indicating growth of 24-25% on a reported basis (from the earlier outlook of $8.20-$8.36, indicating reported growth of 22-25%). Comparable constant currency growth is expected in the range of 26-27%, from the previous range of 25-27%. The Zacks Consensus Estimate for full-year earnings per share is currently pegged at $8.36.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.3% due to these changes.

VGM Scores

At this time, Idexx has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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