For nine quarters in a row, VCA Antech
What analysts say:
- Buy, sell or waffle? Eight analysts follow VCA Antech, up one from last quarter. Three of them rate it a buy, four a hold, and one a sell.
- Revenues. On average, they're looking for 9% sales growth, to $254.8 million.
- Earnings. Profits are predicted to rise 15% to $0.31 per share.
What management says:
CEO Bob Antin characterized last quarter's results as "outstanding" -- and indeed they were, with operating profits growing nearly twice as quickly as the firm's 12% sales growth. Segment-wise, lab revenues and margins on those revenues provided the muscle behind VCA's growth, while the medical technology segment was simply explosive, with both revenues and margins rising rapidly.
This year, the company expects the growth to continue, with minimum revenues of $1 billion, net income of at least $111 million, and earnings per diluted share approximating $1.31.
What management does:
Unsurprisingly, VCA's superb fourth quarter kept its profitability growing. For three quarters running, the rolling gross and operating margins have trended upward. On a net basis, the good news has been coming in even longer than that -- with the exception of last quarter, when higher taxes bit deeply into the net. For comparison, these margins are about on par with rival pet pillmaker Idexx Labs
|
9/05 |
12/05 |
3/06 |
6/06 |
9/06 |
12/06 |
|
|---|---|---|---|---|---|---|
|
Gross |
27.3% |
26.9% |
26.9% |
27.1% |
27.3% |
27.6% |
|
Operating |
19.5% |
19.2% |
19.1% |
19.3% |
19.7% |
19.9% |
|
Net |
8.0% |
8.1% |
9.0% |
10.5% |
10.8% |
10.7% |
One Fool says:
As VCA continues to consolidate its business within the fragmented veterinary market, the firm appears to be reaping the benefits of scale. The relative decline in cost of goods sold (a 9% increase in the second half of 2006, versus 11% sales growth) wasn't the only thing boosting VCA's margins. Its operating costs fell even more steeply (again, relative to sales growth) by rising just 8%.
Where problems are visible in the company's numbers, they tend to crop up not on the income statement, where these margin trends are reported, but on the balance sheet. There we see that bill collection and inventory management both pose problems for the firm. Accounts receivable were up 20% in the second half of '06, and inventories were up 19% -- both at nearly twice the rate of sales growth.
This inefficient management of working capital kept operating cash flow from rising at anything near the rate of net profit growth. Considering that this firm needs operating cash flow to grow its business by rolling up the competition, this self-imposed bottleneck in the flow of cash poses a significant risk to the business.
What did we expect out of VCA last quarter, and what did we get? Find out in:
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Fool contributor Rich Smith does not own shares of any company named above.
