Shares of IDEXX Laboratories (IDXX -0.98%) jumped 7% today after reporting a solid third quarter, raising 2014 guidance, and issuing 2015 guidance that looks even better. The stock of the animal health-test provider soared to a 52-week and all-time high.
Organic revenue in the third quarter increased 13% year over year. If you subtract an increase in distributor inventory, organic revenue only increased 11%.
Adjusted earnings per share jumped a whopping 25%. Most of the discrepancy from the year-over-year increase in revenue comes from the company's share buyback. During the quarter, the company repurchased nearly 2.2 million shares, bringing the year-to-date decrease to 7% of shares that were outstanding at the beginning of the year.
IDEXX Laboratories saw normalized organic growth of nearly 10% in the U.S., which outpaced the growth of the veterinary industry, where visits increased just 0.8%, and veterinarian revenue grew 4.9%. International sales, which are approaching half of total sales, were even better, with a 14% increase in organic growth.
Source: IDEXX Laboratories.
Instrument sales were down 5%, but that's only because Idexx is selling more lower-priced analyzers, and an increase in sales in international price-sensitive markets. If you look at the instrument placements, they increased 32% for both IDEXX's Catalyst systems and for its hematology instruments. That's good news for future growth of disposables used in the machines. The company's Catalyst One is set to launch next month, and should further drive instrument placements given its low price and extensive test capabilities.
After the strong third quarter, IDEXX now sees its 2014 revenue about 9.5% higher than last year, and earnings per share will grow by 12% to 14%. Both of those numbers add back the expected decreases in revenue and earnings in the fourth quarter as IDEXX Laboratories switches from selling its U.S. products through distributors to selling directly to veterinarians. The drawdown of distributor inventories will cut into sales in the fourth quarter, but it's a one-time cost that should result in long-term gains.
Next year, IDEXX Laboratories is looking for even more growth, with organic revenue expected to grow 13% to 14%, including the increase in revenue that distributors used to pocket -- the difference between wholesale price distributors paid and retail prices they sold the products at.
The new model will result in additional expenses associated with selling directly to customers, but the switch appears to be a net benefit to IDEXX Laboratories. The company expects $50 million to $55 million in additional revenue associated with the switch, which will result in between $5 million and $8 million of incremental operating profit benefit.
