MWI Veterinary Supply (MWIV) reported an EPS of 83 cents in the second quarter of fiscal 2011, up 33.9% from 62 cents in the year-ago period and surpassing the Zacks Consensus Estimate of 75 cents. However, the acquisition of UK based Centaur Services in February 2010 impacted the result compared to approximately 8 weeks of the prior-year quarter.
MWI Veterinary Supply’s revenues of $367.1 million for the quarter surpassed the Zacks Consensus Estimate of $351 million and 28.1% higher than the corresponding period last year. While 20.7% of the growth is attributable to business operations of the company in the US, 83.6% came from UK primarily banking on the acquisition of Centaur Services.
Internet sales to independent veterinary practices and producers in the US rose 46% year over year. The company’s product sales from the internet as a percentage of sales in the US improved to 36% during the quarter.
Gross profit increased 29.0% to $51.0 million during the quarter although gross margin expanded by a mere 10 basis points (bps) to 13.9% compared with the year-ago period. Vendor rebates at the end of the quarter increased by $665,000 which helped boost the gross margin. However, the acquisition of Centaur Services which has a lower margin than MWI Veterinary Supply has adversely affected the overall margin.
MWI Veterinary Supply’s operating income increased 33.2% year over year to $16.9 million leading to an increase in operating margin by 18 bps to 4.59%. Although selling, general and administrative (SG&A) expenses increased 26.8% to $32.5 million, SG&A expenses as a percentage of total revenues declined by 10 bps to 8.8% during the reported quarter.
MWI Veterinary Supply exited the quarter with cash balance of $974,000 compared to $911,000 at the end of September 2010. During the quarter the company made certain investments which include the acquisition of animal health product distributor Nelson Laboratories for $7 million in March 2011, capital purchases for headquarters in Idaho, equipment for new distribution center in California and other distribution center technology.
Guidance
MWI Veterinary Supply increased its outlook for fiscal 2011. The company expects to report revenues of $1.49–$1.52 billion, (representing a growth of 21%–24%), and EPS of $3.21–$3.27 (representing a growth of 19%–21%) up from previous EPS guidance of $3.14-$3.22 on revenues of $1.45-$1.50 billion. The Zacks Consensus Estimate of $3.21 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 US, has acquired many companies to either expand its presence in areas where it has low market share or for increasing its focus in new areas.
Through its strategic acquisitions, the company is looking to expand further in the international market and adopt technological advancements. However, based on a tough competitive landscape, we currently have a ‘Neutral’ recommendation on the stock.
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