SediVue Instrument. Image source: IDEXX Laboratories.

IDEXX Laboratories (IDXX 0.07%) reported solid third-quarter revenue growth with even better growth in earnings, setting the animal-diagnostics company up for a solid finish for the year.

IDEXX Laboratories results: The raw numbers

Metric

Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Revenue

$448 million

$406 million

10%

Income from operations

$88 million

$72 million

23%

Earnings per share

$0.62

$0.48

29%

Data source: Company press release. YOY = year over year.

What happened with IDEXX Laboratories this quarter?

  • IDEXX's double-digit revenue growth was driven by the 12% organic growth in recurring revenue for companion animal diagnostics and 18% growth in premium instrument placements.
  • Thanks in part to the launch of its new machine, the SediVue, IDEXX placed over 1,400 premium instruments in North America, an all-time quarterly high.
  • On the downside, sales of livestock-, poultry-, and dairy-testing products declined 2% year over year, but it's a small segment, making up just 6.6% of overall revenue.
  • Increasing operating margins -- both through increased gross margins and decreases in spending relative to revenue growth -- helped the earnings line grow faster than revenue.

What management had to say

The benefit of placing more machines can't be understated, because it drives future sales, as IDEXX's chairman and CEO, Jonathan Ayers, pointed out: "Our current estimates indicate that a SediVue placement generates between $3,000 and $4,500 in annual recurring revenue."

IDEXX's U.S. reference lab revenue grew by double-digits, which Ayers attributed to a little bit of everything: "Some of that's coming from expanded utilization of our expansive menu of tests with our existing customers. Some of it's coming from volume gains that are beyond that, and of course, we're getting some price realization."

When asked about a slowdown in the United Kingdom's economy, Ayers wasn't worried:

Our UK business is on fire. I can't believe how strong. We have an unbelievable team there, and we are not seeing anything. I mean, the only thing we're seeing, of course, is the currency translation effect. But in terms of the impact, what's interesting about this business is the economy might affect it, but our growth rates are so strong.

Looking forward

Management refined its 2016 revenue outlook to a range of $1,763 million to $1,773 million, at the high end of its earlier guidance range, which translates to 10% to 11% year-over-year growth. As seen in this quarter, the bottom-line earnings per share are expected to grow faster at a rate of 15% to 17%.

Looking forward into 2017, management is guiding for revenue growth of 8% to 9% with earnings per share continuing to outpace revenue, falling in the range of 17% to 24% year-over-year growth.

On the back of a successful launch of its SDMA kidney function test at its reference labs, IDEXX plans to launch an SDMA test for its Catalyst machines in the fourth quarter of next year so veterinarians with the machine can run the test in-house. While the test probably won't boost sales much in 2017 given the late-in-the-year launch, knowing that the test is coming could drive additional sales of the Catalyst machines to veterinary offices in anticipation of the SDMA launch.