When it comes to pet healthcare, Idexx Laboratories (IDXX -1.02%) is arguably the best in show. As a leading veterinary diagnostics firm, Idexx provides instruments (testing equipment) and consumables (diagnostic tests) that veterinarians need to run their practices and easily perform diagnostic tests. Essentially, Idexx Labs offers an all-in-one suite of products that handle everything from workflow management to blood and chemistry analyzers, even offering outside reference labs for smaller practices that wish to get accurate and timely results in two days or less.
2020 was a challenging year for most companies, but Idexx proved that it was an animal of a different breed. While the company took a hit earlier in the year, it managed to stabilize its revenue and even grow toward the back end of the year. Based on strong fundamental industry trends and tailwinds, there is a good chance that 2021 could be even better.
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The impact of COVID-19
Idexx Labs makes money when pet owners visit their veterinarians and run diagnostic tests. So, it's no surprise that the COVID-19 pandemic had an immediate impact on Idexx's business, as it did for most other businesses that require customers to leave their homes.
When Idexx Labs reported its second-quarter 2020 results, it noted sharp revenue declines in April 2020 followed by a quick recovery in May and June. As it turns out, people were initially too frightened to take their pets in for treatment. But after a few weeks, veterinarians came up with solutions such as curbside pet drop-off that made the visits safer.
With more people working from home, many opted to adopt new pets to keep company. Also, existing pet owners spent more time with their furry friends which led many to notice that their pets needed to see their vets for treatment. These factors unexpectedly led to increased demand for veterinary services, boosting Idexx's business.
Idexx Lab's strong 2020 earnings
As it turns out, the pandemic didn't derail Idexx's business. In fact, it may have helped in some ways. Total revenue increased and margin improvements led to earnings growing even faster than sales.
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $2.7 billion | $2.4 billion | 12.5% |
| Operating income | $695 million | $553 million | 25.7% |
| Net income | $582 million | $428 million | 36.1% |
| Earnings per share | $6.71 | $4.89 | 37.2% |
Data source: Idexx Labs. YOY = year over year.
This stellar performance was primarily driven by the company's diagnostics segment, which grew 22.9% due to increased clinic visits and an uptick in the utilization of diagnostic tests per visit. Idexx Labs' diagnostics revenue is recurring in nature, because veterinarians have to make annual payments to keep using the equipment. This makes its sales more predictable.
On the negative side, Idexx Labs sold fewer units of its newer testing equipment because it couldn't get its salesforce out into the field. However, fewer equipment unit sales didn't do much to dent the company's revenue growth or profitability.
Overall, Idexx performed very well in 2020 thanks to favorable trends in pet adoption and demand for veterinary services. It is somewhat surprising -- but the company ended up turning 2020 into a record year for revenue and earnings.
The outlook for 2021
Idexx Labs is expected to lead the pack once again with a strong 2021. Top-line revenue growth is expected to grow by double digits, led by even higher growth in diagnostics recurring revenue. The company expects continued growth in the overall number of veterinary visits and continued growth in the number of diagnostic tests run by veterinarians, according to its Q4 2020 earnings call.
Another thing to look forward to is the launch of Procyte One, Idexx's new best-in-class hematology analyzer -- a machine that analyzes blood samples. It is expected to be a blockbuster hit, with preorders and reviews already surpassing expectations. Idexx Labs has priced the machine attractively to encourage greater adoption and hopes to generate revenue from the number of tests that can be performed. The company expects to sell over 100,000 Procyte One units.
Things are looking fairly bright for the top line, but Idexx Labs is targeting more moderate improvement on the bottom line. The company expects as much as 100 basis points of margin improvement, which is below the margin improvement experienced in 2020.
All in all, the company's growth outlook for 2021 is encouraging on both the top and the bottom lines, and gives investors plenty to look forward to.
A long-term winner
While 2020 was undoubtedly a great year for Idexx Labs, the company has been a strong performer for a long time. This is another case in which a winner has continued to win.
Idexx has done a good job in North America and still has plenty of untapped growth potential domestically, but especially outside of the U.S. The company is poised to continue its leadership in the pet diagnostics testing market, which continues to grow as people around the world adopt more pets and spend more money taking care of their furry friends. All of those elements are setting Idexx (and its lucky investors) up for an exciting future.
Editor's note: The revenue numbers in the table in this article have been corrected.
