Strong Quarter for MWI Veterinary - Analyst Blog

MWI Veterinary Supply (MWIV) reported an EPS of 71 cents in the fourth quarter of fiscal 2010, up 34% from 53 cents in the year-ago period and surpassing the Zacks Consensus Estimate of 61 cents. For fiscal 2010, the company reported an EPS of $2.70, well above the Zacks Consensus Estimate of $2.60 and the previous year's $2.02. However, the acquisition in February 2010 of U.K. based Centaur Services Limited, an animal health products supplier, impacts the current quarter.

MWI Veterinary Supply's revenues of $358.9 million for the quarter surpassed the Zacks Consensus Estimate of $334 million and 45% higher than the corresponding period last year. While 19.2% of the growth is attributable to business operations of the company in the U.S., 25.8% came from the acquisition of Centaur Services. For fiscal 2010, revenues came in at $1.23 billion, 30.6% higher than 2009 and marginally above the Zacks Consensus Estimate of $1.20 billion.                                                           

Gross profit increased 30.5% to $45.5 million during the quarter although gross margin declined 140 basis points (bps) to 12.7% compared with the year-ago period. The acquisition of Centaur Services which has a lower margin than MWI has brought down the overall margin. However, vendor rebates during the quarter declined $850,000.

MWIV's operating income increased 29.6% year over year to $13.8 million although operating margin declined 39 bps to 4.23%. Although selling, general and administrative (SG&A) expenses increased 29.4% to $30.3 million primarily due to the acquisition of Centaur, SG&A expenses as a percentage of total revenues improved to 8.5% during the reported quarter compared with 9.5% in the year-ago period. This is because Centaur's SG&A expense margin is lower than MWI which has brought down the overall SG&A expense margin. In addition, the company witnessed an improvement in debt collection.

Guidance

MWI Veterinary Supply provided its outlook for fiscal 2011. The company expects to report revenues of $1.41–$1.46 billion (representing a growth of 15%–19%) and EPS of $3.02–$3.10 (representing a growth of 12%–15%). The Zacks Consensus Estimate of $3.05 is towards the low end of this range.

Outlook

We are pleased with the momentum maintained by MWI Veterinary Supply over the past few years. The company, one of the leading distributors of animal health products to veterinarians across the U.S., has acquired many companies to either expand its presence in areas where it has a low market share or is venturing into new areas. Besides, the company has witnessed a substantial market share gain.

We currently have an "Outperform" recommendation for the stock.