IDEXX Labs (NASDAQ: IDXX) reported Q2 EPS of $0.95, $0.10 better than the analyst estimate of $0.85. Revenue for the quarter came in at $508.94 million versus the consensus estimate of $502.27 million.

2017 Financial Outlook

We are raising our 2017 revenue outlook by $17.5 million at the midpoint of prior guidance to $1,945 million - $1,965 million, reflecting an expectation for organic revenue growth of 10% - 11% and approximately a $13 million revenue benefit from updated assumptions related to foreign exchange rates, as noted below. At these rates compared to rates in effect in 2016, we estimate that the stronger U.S. dollar will adversely impact 2017 reported revenue growth by approximately 0.5%, EPS growth by 1%, and reduce EPS by an estimated $0.03 per share, including the net impact from projected hedge gains of approximately $3 million in 2017 compared to $4 million in 2016.

We are also increasing our 2017 EPS outlook to $3.12 - $3.22 per share, reflecting an incremental increase of $0.14 per share at the midpoint of our earlier guidance range. This higher outlook is supported by a projected $0.04 incremental operating profit flow-through from strong revenue trends and higher expectations for annual operating margin improvement, while covering incremental investments in the U.S. CAG business, enabling information technology, R&D and acquisition integration. We now expect full-year operating margin to improve 100 - 125 basis points on a reported basis and 110 - 135 basis points on a constant currency basis, compared to the prior year period. The raised EPS guidance also reflects a $0.02 benefit due to reduced headwind from updated foreign exchange rate assumptions, and an additional $0.08 per share related to raised projections for 2017 benefits from share-based compensation accounting changes.

The updated outlook represents EPS growth of 28% - 32% on a reported basis and 29% - 33% constant currency EPS growth. This outlook includes the impact of the new accounting guidance related to share-based compensation, which we estimate will result in $0.30 - $0.34 of EPS benefit in 2017 reflecting an estimated $27 million to $30 million reduction in our tax provision. While these impacts may vary significantly by quarter based on the timing of actual settlement activity, an estimated $0.15 of the projected full-year 2017 benefit reflects higher than normal stock option exercising in 2017, a level of activity that is not expected to continue in future periods. For 2018 and future years, we estimate the annual benefit from share-based compensation will be approximately $14 million to $17 million assuming the current share price and no change in U.S. tax policy.

The guidance for 2017 reflects the assumptions that the value of the U.S. dollar relative to other currencies will remain at the following rates: euro at $1.12, British pound at $1.28, Canadian dollar at $0.76, Australian dollar at $0.75, Japanese yen at ¥114, Chinese renminbi at RMB 6.80 and Brazilian real at R$3.40 to the U.S. dollar for the remainder of 2017.

GUIDANCE:

IDEXX Labs sees FY2017 EPS of $3.12-$3.22, versus the consensus of $3.07. IDEXX Labs sees FY2017 revenue of $1.945-1.965 million, versus the consensus of $1.94 million.

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