VCA Antech shares soar on strong 1Q results, outlook

Shares of veterinary services provider VCA Antech Inc. jumped Thursday, after the company reported a 10 percent rise in first-quarter profit and reaffirmed its outlook for 2008 despite a weakening U.S. economy.

Net income increased to $31.2 million, or 36 cents per share, from $28.3 million, or 33 cents per share, a year ago.

Revenue rose 16 percent to $307.8 million from $265.1 million, as lab revenue jumped 4 percent and animal hospital revenue climbed nearly 21 percent on contributions from acquisitions.

Analysts surveyed by Thomson Financial had expected profit of 34 cents per share on revenue of $309.4 million.

Shares jumped $2.59, or 9.3 percent, to $30.50 in afternoon trading.

Looking ahead, VCA Antech reaffirmed its 2008 guidance for profit of $1.55 to $1.60 per share on revenue of $1.30 billion to $1.33 billion. Wall Street has predicted earnings per share of $1.57 on revenue of $1.3 billion.

Jefferies & Co. analyst Arthur Henderson said that while tough economic conditions continue to impact volumes, he believes VCA's management can sufficiently offset this weakness through continued cost controls. In a note to clients he reiterated a "Buy" rating and $38 price target.

Henderson said that VCA Antech's second-quarter volumes will be a deciding factor in determining whether management's expectations for 8 percent to 10 percent growth in its lab segment and 3 percent to 5 percent growth in animal hospital revenue will hold.

"While management was upbeat about the company's outlook, they did comment that April volumes remain "choppy" as a result of current macroeconomic conditions," he wrote. "Should volumes remain choppy (and we think they will be), ongoing cost control will be absolutely essential for management to meet its stated fiscal 2008 guidance."

Morgan Keegan & Co.'s Robert Mains said he is impressed by the company's ability to rein in costs in response to a business slowdown that started in the fourth quarter. However, he thinks the margins gains are mitigated by a continued growth slowdown that may make guidance goals a stretch.

He maintained an "Outperform" rating on the stock, but noted that the company's fortunes remain tethered to the economy. Elective pet services often decline in a weakening economy as consumers face hard choices amid rising gas and food prices.