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Idexx Laboratories, Inc.: Solid Earnings. Guidance, Not So Much.

By Brian Orelli, PhD - Oct 31, 2015 at 7:25PM

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The animal diagnostic testing company is having one-time issues with taxes, currency changes, and macroeconomic issues

Catalyst One analyzer. Source: Idexx Laboratories.

Idexx Laboratories (IDXX 2.20%) reported solid third-quarter earnings on Wednesday. The look forward, though, wasn't nearly as pleasant for the animal diagnostic testing company.

Idexx Laboratories results: The raw numbers


Q3 2015 Actuals

Q3 2014 Actuals

Growth (YOY)


$406 million

$384 million


 Income from operations

$71.9 million

$72.2 million


Earnings per share




What happened with Idexx Laboratories this quarter?

  • While 6% revenue growth is nothing to get too excited about, Idexx Laboratories managed 12% growth in normalized organic revenue, which subtracts out currency changes, revenue from business acquisitions, and the impact of inventory changes resulting from the switch from distributors to direct selling.
  • The company placed 1,325 Catalyst instruments and 865 premium hematology instruments, a 54% increase from the year-ago quarter. Those instruments will drive recurring revenue from the diagnostics run on the machines in future quarters.
  • Speaking of recurring revenue, in the companion animal group, recurring revenue increased a solid 11% on a normalized organic basis.
  • Rapid assay products, which had struggled in previous quarters, rebounded with a 7% increase in normalized organic revenue for the segment.
  • Guidance for this year's adjusted earnings per share was lowered to 2% to 4% year-over-year growth, compared with a previous guidance of 4% to 6% growth. Revenue guidance was also ratcheted down.

What management had to say
Jonathan Ayers, Idexx's chairman and CEO, explained why the revenue guidance was reduced, "This outlook reflects moderated market growth trends in Europe and recent macroeconomic impacts, including effects from foreign currency erosion, limiting emerging-market gains." For the adjusted earnings-per-share revision, Ayers blamed "additional headwinds from recent foreign currency changes in emerging markets and a higher effective tax rate, affected by updated estimates for regional profit mix including foreign currency impacts." Taxes, currency changes, and macroeconomic issues -- things out of Idexx's control -- are a pretty good excuse for lowered guidance.

In addition to tests that are run by veterinarians, Idexx runs a reference laboratory where samples can be sent for testing, which is growing quite nicely and taking market share. "I believe the 13% organic growth in the third quarter is indicative of the cumulative success that we're having in the reference lab modality," Ayers said. "I think that's higher than the market growth. And if your growth is higher than the market growth for lab modality, then by definition you're gaining share."  .

That's of course true only if the growth is coming from volume, not price increases, which CFO Brian McKeon confirmed was the case. Management didn't say which company was losing market share, but VCA (WOOF) isn't growing nearly as fast. VCA reported that laboratory revenue increased 9.1% in the third quarter, but some of that was because of an acquisition. On a same-store basis, VCA's laboratory revenue increased only 6%.

Looking forward
Despite the strong third quarter, the outlook for the rest of this year and 2016 isn't nearly as strong. Management guided for next year's normalized organic revenue growth in the 8% to 9% range. And the bottom line will look even worse, with the stronger dollar and higher taxes expected to have a drag on earnings. Management guided for adjusted earnings per share to grow only 1% to 5% next year.

While it's hard to get excited about the tepid growth, the items reducing the growth are mostly one-time troubles that are out of the company's hands. If Idexx continues to perform well, placing instruments and taking market share from competitors, 2017 growth will look a lot better.

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