MWI Veterinary Supply (MWIV) reported fiscal second-quarter earnings per share of 62 cents, surpassing the Zacks Consensus Estimate of 50 cents and the year-ago earnings of 47 cents. The company reported $286.6 million in revenues, a growth of 34% compared to the corresponding period last year. While 18% of that growth is attributable to business operations of the company, 16% came from the acquisition of Centaur Services.

In February 2010, MWIV acquired UK-based Centaur Services Limited, which is an animal health products supplier. Centaur, with a distribution center in Somerset, had revenues of £140 million (approximately $220 million) for the full year 2009. With this acquisition, MWIV aims to expand its presence in the international market.

Gross profit increased 25% to $39.5 million during the quarter, though gross margin declined by 90 basis points (bps) to 13.8% compared to the year-ago period. The acquisition of Centaur Services, whose margin is lower compared to MWIV, has brought down the overall margin.  Additionally, vendor rebates during the quarter increased by approximately $475,000, which brought down the margin.

In the reported quarter, MWIV’s operating income increased 37% to $12.7 million with an improvement in operating margin. Although SG&A expenses increased 19% to $25.6 million based on the acquisition, SG&A expenses as a percentage of total revenues improved to 8.9% during the quarter compared to 10% in the year-ago period. Moreover, SG&A expenses included $915,000 in the form of acquisition-related expenses. Excluding the expenses related to the acquisition, SG&A expenses as a percentage of total revenues improved to 8.6% for the reported quarter.

Based on a strong second quarter, MWIV raised its guidance for fiscal 2010. While revenue guidance has been narrowed to $1.16-$1.18 billion (previous guidance: $1.14-$1.18 billion), EPS is expected in the range of $2.40 – $2.45 ($2.26 – $2.32). If revenues meet expectations, it will represent growth of 23% to 25% compared to revenues in fiscal 2009.

The guidance has been provided considering the future outlook of the company following the acquisition of Centaur Services. We have a Neutral recommendation on the stock.

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