IDEXX Labs (IDXX) Tops Q2 EPS by 5c; Approves Buyback; Guides FY14

IDEXX Labs (NASDAQ: IDXX) reported Q2 EPS of $1.10, $0.05 better than the analyst estimate of $1.05. Revenue for the quarter came in at $390 million versus the consensus estimate of $385.2 million.

IDEXX Labs sees FY2014 EPS of $3.79 - $3.86, versus the consensus of $3.84. IDEXX Labs sees FY2014 revenue of $1.51 - $1.52 billion, versus the consensus of $1.50 billion.

Increase in Share Repurchase Program

The IDEXX Board of Directors has authorized the repurchase by the Company of up to an additional five million shares of its common stock under its ongoing share repurchase program. Repurchases may be made in the open market (including through Rule 10b5-1 plans) or in negotiated transactions. These shares are in addition to the 1,412,333 shares remaining under the Company's share repurchase program as of June 30, 2014, pursuant to previous Board authorization.

Transition to an All-Direct Product Distribution Model in the US

The Company plans to transition to an all-direct product distribution model in the US effective January 1, 2015 for rapid assay test kits and instrument consumables, upon completion and expiration of our current annual contracts with our US distribution partners.

The Company will significantly enhance its go-to-market capability as a part of this change through the addition of Veterinary Diagnostic Consultants and sales specialists, inside sales and customer support resources, field service representatives, as well as a new regionally-based Professional Service Veterinarian capability. The Company will also expand its US warehouse and distribution capabilities primarily through use of third-party logistics providers.

Consistent with a direct sales approach, the Company will recognize revenue at the veterinary practice level on rapid assay test kits and instrument consumables, instead of at distribution, capturing an additional $50 million to $55 million in annual revenue beginning in 2015. The Company estimates that annual operating profit associated with this growing revenue stream will increase approximately $5 million to $8 million in 2015, before transitional impacts, with accretive benefits that will scale over time.

The Company will incur transition costs in implementing the all-direct product distribution approach in the US. For 2014, this will include approximately $8 million in incremental expense as the Company ramps up sales and operating resources ahead of the planned January 1, 2015 introduction of the new model. The Company also expects to incur approximately $10 million to $12 million in non-recurring expenses in the second half of 2014 associated with project management and other one-time costs required to implement the new model. Combined, the Company estimates these transition costs will reduce reported EPS by approximately $0.23-$0.25 in 2014.

In 2015, transitional impacts will be primarily related to the drawdown of inventory held by distributors at the end of the year. The Company's financial outlook assumes that distributors will hold approximately 3.5 weeks of inventory at the end of 2014, consistent with prior trends. The Company estimates that the drawdown of this inventory will occur primarily in the first quarter of 2015 and will result in a one-time reduction in projected revenue and operating profit of $30 million to $35 million, and $23 million to $27 million, respectively. Additionally, the Company expects to incur $2 million to $3 million in remaining project management expenses in early 2015.

For earnings history and earnings-related data on IDEXX Labs (IDXX) click here.

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