What: IDEXX Laboratories (NASDAQ:IDXX) was down as much as 15% today after the veterinary diagnostic company released third quarter earnings.
So what: Third quarter revenue didn't look that bad with an increase of 6% year over year that was adversely affected by six percentage points due to the stronger dollar.
There was a 12% year-over-year increase in normalized organic revenue growth, which removes the currency changes, revenue from business acquisitions, and impact of inventory changes due to the switch from distributors to direct selling. While it's a lot of things to subtract out, normalized organic revenue growth is the best measure of the company's growth because it subtracts out all the things the company doesn't have control over.
After the second quarter, IDEXX Laboratories said to expect 2015 normalized organic revenue growth of 12% to 13%, so the third quarter's 12% growth fell in line with the guidance, albeit at the low end.
Unfortunately, IDEXX Laboratories doesn't think it'll be able to stay at that level in the fourth quarter. The new 2015 guidance is for approximately 11% normalized organic revenue growth. The company blamed "moderated market growth trends in Europe and recent macroeconomic impacts, including effects from foreign currency erosion, constraining targeted emerging market gains" for the lower expectations.
Earnings guidance was also adjusted downwards. IDEXX Laboratories now expects 2015 adjusted earnings per share to increase 2% to 4% year over year, compared to a previous guidance of 4% to 6% year-over-year growth. The adjusted earnings per share include foreign exchange rate changes, although it's a moderate effect because the company has currency hedges in place. Earnings are also be effected by higher taxes, including the Federal R&D tax credit that hasn't been renewed.
IDEXX's competitor Abaxis (NASDAQ:ABAX) is up 19% today, though it doesn't seem to be due to IDEXX's issues, but rather the strength of Abaxis' own earnings after the bell last night. Abaxis' veterinary sales were up 11% year over year and its medical market, which doesn't compete with IDEXX, grew even more. Abaxis' veterinary sales are mostly in North America, so it doesn't have the same issues as IDEXX.
Now what: Management released guidance for 2016, and it doesn't look any prettier. Normalized organic revenue growth is expected to be in the 8% to 9% range. Unfortunately the aforementioned hedges that helped prop up the bottom line will have expired, and adjusted earnings per share is only expected to grow 1% to 5%.
A lot of IDEXX's issues are one-time items -- the dollar can't strengthen forever -- so there's no sense in long-term investors worrying about them. The slowdown in Europe is a little more troublesome, but as long as it's a macro issue that's out of IDEXX's hands -- as opposed to losing market share -- the company will be just fine. When Europeans feel they have more to spend on their pets, the veterinarians will be all set to run IDEXX's diagnostics.