IDEXX Laboratories(IDXX -1.89%) mix of companion animal/livestock diagnostics and water health products/services make it a relatively defensive stock to hold in a world worried about economic growth. That said, every company needs to deliver on its objectives in order to keep investors happy, and IDEXX certainly did that in its fourth-quarter results on Friday.

IDEXX Laboratories' fourth quarter: The raw numbers
Whichever way you look at it, IDEXX had a strong quarter. Normalized organic revenue growth of 11% in the fourth quarter was slightly above management's expectations. Quarterly reported revenue increased 14% year over year with the key Companion Animal Group, or CAG, segment recording normalized organic revenue growth of 13%.

The earnings picture is somewhat complicated by foreign currency movements, an impairment charge in 2015, and previous years' expenses. All told, adjusted earnings per share for the quarter at constant currency came in 9% ahead of the prior year period. Full-year 2015 adjusted EPS of $2.11 increased 14% year over year when adjusted for currency.

What happened with IDEXX Laboratories this quarter
Here's a quick look at income from operations from the three reporting segments to show their relative importance:


As you can see in the table below, revenue growth in each segment was significantly affected by currency movements. Nonetheless, Water (quality testing solutions) and CAG reported strong increases in organic revenue. Water benefited from the launch of a new product (the Quanti-Tray sealer) and what CFO Brian McKeown called "worldwide increases in core product sales." 


Organic Revenue Growth

Change From Currency

Reported Revenue Growth



(5.1%) 18%*


(5.1%) 4.8%

Livestock & Poultry Diagnostics


(10.7%) (8.8%)


Turning to the CAG segment, McKeown outlined strong instrument placement growth in the fourth quarter: "Global premium instrument placements increased 35% in Q4 supported by 61% growth in Catalyst placements. Global instrument revenue of $29 million was up 28% organically year-on-year in Q4." He continued, "For the full year we placed 4,944 Catalysts and 3,744 premium hematology analyzers globally representing growth of 59% and 17%, respectively, well ahead of our goals."

In addition, CAG Diagnostics' recurring revenue -- comprising IDEXX's consumables, services, and rapid assay products in the CAG segment -- generated 23.9% organic revenue growth in the fourth quarter. Putting this into context, the recurring revenue represented 84.5% of total CAG revenue in 2015.

Company guidance
Management made some tweaks to full-year 2016 guidance, but they didn't amount to any significant changes.

Key points:

  • Full-year 2016 organic revenue growth guidance for 8% to 9% growth maintained
  • Full-year revenue range of $1,690 million to $1,710 million representing a $25 million reduction to previous guidance, due to the strengthening U.S. dollar
  • Full-year EPS guidance range of $2.10 to $2.17 compared to previous guidance of $2.09 to $2.16
  • Free cash flow conversion from net income of 95% to 100%

Again, the impact of currency can be seen in the EPS guidance. On a reported level, EPS is forecast to increase just 2% to 6% in 2016, while on a constant currency adjusted basis, it represents a 12% to 15% increase.

Looking ahead
Heading into 2016, IDEXX will come up against some strong comparables from 2015. The expectation of 8.5% to 9.5% full-year growth in CAG Diagnostics recurring revenue assumes an improvement in the second half. Management's focus in the U.S. "will be on placements at new and competitive counts," according to McKeown on the earnings call, with the company targeting "solid gains in CAG instrument revenues as well."