IDEXX Q2 Earnings Miss Estimates, 2024 View Down

IDEXX Laboratories, Inc. IDXX posted second-quarter 2024 earnings per share of $2.44, down 8.6% year over year. The figure missed the Zacks Consensus Estimate by 14.9%.

Comparable constant-currency EPS of $3.02 improved 14.8% year over year.

Revenues in Detail

Quarterly revenues increased 6.4% year over year (up 7% organically) to $1.00 billion. The reported figure was in line with the Zacks Consensus Estimate.

The year-over-year upside was primarily driven by a strong improvement in Companion Animal Group ("CAG") revenues.

Veterinary software, services and diagnostic imaging systems' revenues increased 12% on a reported basis and 8% organically, reflecting high recurring revenue growth and continued momentum in cloud-based software placements.

Segmental Analysis

IDEXX derives revenues from four operating segments — CAG, Water, Livestock, Poultry and Dairy ("LPD"), and Other.

CAG revenues rose 6% year over year on a reported basis and 7% on an organic basis to $922.3 million.

CAG Diagnostics' recurring revenues, too, increased 6% on a reported basis and 7% organically, supported by strong growth in international regions and sustained benefits of IDEXX execution drivers.

The Water segment's revenues increased 9% year over year on a reported basis and 10% organically to $46.7 million.

For the second quarter, LPD revenues increased 1% on a reported and 3% on an organic basis to $30.3 million.            

Revenues from the Other segment rose 5.3% on a reported basis to $4.2 million.

Margins

The gross profit rose 8.1% to $619.2 million. The gross margin expanded 99 basis points (bps) to 61.7% despite a 3.7% rise in the cost of revenues.

Sales and marketing expenses rose 1.5% to $142.7 million. G&A expenses surged 75.4% to $157.2 million.  R&D expenses rose 19.2% to $55.5 million. As a result of these, the operating profit in the reported quarter declined 10.9% year over year to $263.8 million. The operating margin in the quarter contracted 510 bps to 26.3%.

Financial Position

IDEXX exited the second quarter with cash and cash equivalents of $401.6 million compared with $397.4 million at the end of the first quarter of 2024. Total debt (including the current portion) was $694.9 million compared with $695.8 million at the end of the first quarter of 2024.

The cumulative net cash provided by operating activities was $446.9 million compared with $384.2 million in the prior-year comparable period.

2024 Guidance

IDEXX provided an updated outlook for 2024.

The company expects total revenues to be in the range of $3,885-$3,945 million (down from the previous guidance of $3,895-$3,965 million). This suggests growth of 6.2-7.8% (earlier 6.5-8.5%) on a reported basis and 6.2-7.8% (earlier 7-9%) on an organic basis. The Zacks Consensus Estimate is currently pegged at $3.93 billion.

IDEXX expects full-year EPS to be in the range of $10.31-$10.59 (down from the previous guidance of $10.82-$11.20). This updated guidance indicates reported growth of 2-5% (earlier 8%-11%). The Zacks Consensus Estimate for full-year EPS is currently pegged at $11.00.

Our Take

IDEXX's earnings missed the Zacks Consensus Estimate, while revenues were in line with the same. The performance reflected continued high customer demand in adopting the company's innovative, multi-modality testing platforms and solutions. The expansion of the gross margin in the quarter is highly promising.

The company achieved strong global growth across all its testing modalities, including IDEXX VetLab consumables, Reference laboratory diagnostic and consulting services and Rapid assay products.  

Meanwhile, solid LPD gains in the United States and Europe were offset by lower Asia Pacific revenues, including the effects of reduced swine testing and herd health screening levels. Escalating expenses are leading to severe operating margin contraction for IDXX. The reduced financial outlook for the full year is discouraging. 

Zacks Rank and Key Picks

IDEXX currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks from the broader medical space are Intuitive Surgical ISRG, Abbott Laboratories, Inc. ABT and Quest Diagnostics DGX.

Intuitive Surgical reported a second-quarter 2024 adjusted EPS of $1.78, which beat the Zacks Consensus Estimate by 16.3%. Revenues of $2.01 billion topped the consensus estimate by 2%. ISRG currently sports a Zacks Rank #1 (Strong Buy).

Intuitive Surgical has a long-term earnings growth rate of 16.1% for 2024 compared with the industry's 14.1%. The company's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.97%.

Abbott, carrying a Zacks Rank #2 (Buy) at present, reported second-quarter 2024 earnings of $1.14 per share, which surpassed the Zacks Consensus Estimate by 3.6%. Revenues of $10.38 billion topped the Zacks Consensus Estimate by 0.3%.

ABT has an earnings growth rate of 10.1% for 2025 compared with the S&P 500's 9.3%. The company beat on earnings in each of the trailing four quarters, the average surprise being 2.34%.

Quest Diagnostics, carrying a Zacks Rank #2 at present, reported a second-quarter adjusted EPS of $2.35, which surpassed the Zacks Consensus Estimate by 1.7%. Revenues of $2.40 billion outpaced the Zacks Consensus Estimate by 0.5%.

DGX has a historical five-year earnings growth rate of 7.4% compared with the industry's 4.2%. The company's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 3.31%.

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