MWI Veterinary Supply (MWIV) reported first quarter 2012 EPS of $1.05, surpassing the Zacks Consensus Estimate of 95 cents and was 20.7% higher than the year-ago quarter EPS. Revenues in the reported quarter were $461.9 million, exceeding the Zacks Consensus Estimate of $407 million and up 26.1% year over year.
Excluding the impact of the acquisition of the assets of Micro Beef Technologies, the company’s revenue grew 14.1% in the U.S. In the UK, revenue increased 11.0% year over year, including 11.7% organic growth, partiall offset by a 0.7% decline related to foreign exchange. Revenues from Micro Beef acquisition were $46.2 million for the quarter. Commissions remained flat year over year at $3.7 million, negatively impacted by the loss of a pet food line in fiscal 2012 that was earlier represented in fiscal 2011, partially offset by the growth in other agency products.
In the reported quarter, Internet sales to independent veterinary practices and producers in the US rose 34% year over year. Veterinary pharmacy programs revenues increased roughly 43% to $47.6 million.
Gross profit increased 24.8% to $62.5 million during the quarter. However, gross margin contracted 20 basis points (bps) to 13.5% from the year-ago period. The decline was due to decrease in vendor rebates and commissions as a percentage of total revenue.
In the reported quarter, MWIV’s operating income increased 22.1% to $21.4 million. However, operating margin during the quarter dipped 15 bps to 4.63% primarily due to a 25.3% rise in selling, general and administrative (SG&A) expenses to $38.9 million.
MWIV exited the quarter with cash balance of $551,000 compared with $606,000 at the end of fiscal 2011. Cash flow from operations at the end of the first quarter was $7.3 million compared with $5.9 million in the prior-year period.
Earlier in October, MWIV acquired Micro Beef Technologies Ltd for an aggregate purchase price $61 million. The total consideration includes approximately $53.4 million in cash and common stock valued at $7.2 million. In connection with the acquisition, the company increased the borrowing capacity of its existing credit facility from $100 million to $150 million. At the end of December 2011, the company had $51.6 million outstanding to its credit facilities.
Outlook
MWIV updated its guidance for fiscal 2012. The company expects to report revenues of $1.90-$1.95 billion (earlier guidance was $1.87- $1.93 billion), representing annualized growth of 21-25% (19-23%). The company also expects the 2012 EPS to be in the range of $3.85- $4.00 ($3.70-$3.90) with annualized growth of 13-18% (9-15%).
Our Take
MWIV, which is one of the leading distributors of animal health products to veterinarians across the US, has acquired many companies to either expand into under-penetrated markets or for increasing its focus in new areas. The company has witnessed substantial market share gain amidst a low-growth environment. However, the company faces stiff competition from key players like Henry Schein (HSIC) and Animal Health International.
Presently MWIV retains a short-term Zacks#2 Rank (Buy). However, over the long term, we have a ‘Neutral’ recommendation on the stock.
To read this article on Zacks.com click here.
Zacks Investment Research
