IDEXX Laboratories (IDXX 2.97%), a diversified pet healthcare company, reported its second-quarter results on Thursday.

Revenue growth held steady at 7%, although the number would have been a little bit higher had it not been for currency movements. Steady margin improvements allowed the company to report 16% growth in EPS, and management boosted guidance in response to the broad-based strength.

IDEXX Laboratories second-quarter results: The raw numbers

Metric

Q2 2019

Q2 2018

 Change

Revenue

$620 million

$581 million

7%

Net Income 

$126 million

$109 million

16%

Earnings per share

$1.43

$1.23

16%

Data source: IDEXX Laboratories.

What happened with IDEXX Laboratories this quarter?

  • Organic revenue growth was 9%.
  • Companion animal group (CAG) revenue grew 10% on an organic basis to $547 million. Water product sales grew 10% to $35 million, while livestock, poultry, and dairy products were flat at $33 million.
  • 3,171 instruments were placed during the period, which was down 2% year on year. The Catalyst chemistry-analyzer product continues to be the star of the show with 1,635 placements.
  • Gross margin jumped 50 basis points to 57.7%. The increase was a result of a favorable sales mix and increased leverage.
  • The operating margin rose 140 basis points to 26.5%. Gross margin expansion and operating leverage helped drive the gains.
  • On a currency-neutral basis, EPS growth would have come in at 19%.
  • 86,000 shares of common stock were repurchased during the quarter.
  • Cash balance at quarter-end was $111 million, while debt was $956 million.
Two vets holding a dog on a table

Image source: Getty Images.

What management had to say

Longtime CEO Jonathan Ayers is currently on medical leave after sustaining a severe spinal cord injury in a bicycling accident. It is unknown how long he will be away.

Interim CEO Jay Mazelsky shared the following commentary with investors:

IDEXX business momentum remained strong in the second quarter, driven by high organic growth in CAG Diagnostics recurring revenues. The solid performance we continue to deliver is the result of a deep and talented global team, an unrelenting commitment to innovation, a unique multimodal strategy, and our durable recurring-revenue business model. We're well positioned to build on this foundation through the expansion of key initiatives like IDEXX Preventive Care, which is building momentum as a driver of increased diagnostic testing, supporting faster growth for engaged IDEXX customers. 

Looking forward

Management refined its full-year guidance in response to the second-quarter results. Revenue is now expected to land in a range of $2.38 billion to $2.410 billion, an adjustment from its prior range of $2.385 billion to $2.425 billion. This represents organic revenue growth of 9.5% to 10.5%, which is a reduction from its prior outlook range of 9.5% to 11%. 

EPS guidance was adjusted to a range of $4.82 to $4.92, which represents a $0.05 jump at the midpoint from its prior outlook. This new range represents growth of 13% to 15% on reported EPS growth, or 17% to 20% on a comparable constant-currency basis.

Management continues to believe that free cash flow will be about 60% to 65% of net income due to its heavy spending on its headquarters in Maine and relocation of a laboratory in Germany. 

Mazelsky ended his prepared remarks on the call with investors by stating that IDEXX remains poised to achieve its long-term goals: "In summary, we feel very good about our business progress across a range of strategic fronts, and believe we are well positioned to sustain strong recurring CAG Diagnostic revenue growth and EPS gains aligned with our goals. We look forward to sharing more about the enduring growth potential we see for our business and our long-term strategy to capture this potential at the upcoming Investor Day later this month.