Can Steady CAG Growth Drive IDEXX's (IDXX) Q1 Earnings?

IDEXX Laboratories, Inc. (IDXX is scheduled to report first-quarter 2019 results on May 1, before the market opens. In the last reported quarter, the company delivered a positive earnings surprise of 8.9%. The stock beat the Zacks Consensus Estimate in each of the last four quarters, the average beat being 7.2%.

Let's take a look at how things are shaping up prior to this announcement.

Key Catalysts

IDEXX's earnings beat momentum is expected to continue in the first quarter, courtesy of a strong global rise in Companion Animal Group (CAG) Diagnostics revenues. The company is registering solid organic revenues in this segment on gains from consumable and reference lab as well as growing acceptance of Rapid Assays and Veterinary Software, Services and Diagnostic Imaging Systems.

IDEXX Laboratories, Inc. Price and EPS Surprise

IDEXX Laboratories, Inc. price-eps-surprise | IDEXX Laboratories, Inc. Quote

IDEXX is currently witnessing high-volume-driven consumable gains within CAG supported by expansion of SediVue paper run and SDMA slide revenues. Apart from this, Rapid Assay is showing strong performance on continued growth of 40x plus, Specialty and first generation products. These should strongly contribute to the to-be-reported quarter’s CAG performance.

The Zacks Consensus Estimate of $517 million for CAG Diagnostics revenues suggests a 9.8% improvement from the year-ago quarter.

Guidance

The company expects 2019 CAG Diagnostic recurring revenue organic growth of 11% to 12%.

Other Factors

We pin hopes on the progress in the Water Business, which of late has been gaining from encouraging test results in the United States and the global go-direct initiatives. The business witnessed 9% organic strength in the last reported quarter. The company expects high-single-digit organic growth in the business this year as well.

The consensus mark for Water revenues stands at $28.9 million for the yet-to-be-reported quarter, calling for a 0.8% decline from the year-ago number.

IDEXX has been constantly expanding its global footprint. It has been significantly benefiting from the abundant opportunities in the emerging companion animal diagnostics markets. Further, management's regular share buybacks underscore a robust free cash flow reserve.

On the flip side, revenue growth in the Livestock, Poultry and Dairy contracted in the fourth quarter due to end-market impacts of African swine fever outbreaks in China, which is the company’s largest market for swine diagnostic testing. The continued impact of low milk prices in key markets also dented demand for Dairy testing and bovine pregnancy test sales. These issues are expected to mar this segment's performance for the to-be-reported quarter as well.

Adverse foreign currency movement is another headwind. The company's heavy reliance on third-party distributors is disturbing as well. The purchasing dynamics of distributors leave a significant impact on the company's sales of instrument consumables and its rapid assay products. Moreover, IDEXX has been witnessing a rise in operating expenses due to increased head count along with higher investments in portfolio development as well as expansion in the United States and internationally.

Additionally, a competitive landscape in the domestic and overseas markets weighs on IDEXX's performance. Thus, the struggle to gain market traction might hurt first-quarter results.

The Zacks Consensus Estimate for overall first-quarter 2019 revenues is pegged at $573.9 million, indicating a 6.74% improvement from the year-ago quarter.

Here's What the Quantitative Model Suggests:

Our proven Zacks model clearly shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has higher chances of beating estimates if it also has a positive Earnings ESP.

IDEXX has a Zacks Rank #3, which increases the predictive power of ESP. However, it has an Earnings ESP of 0.00%, which leaves surprise prediction inconclusive as the company also needs a positive ESP to be confident about a likely surprise. Thus, this combination fails to suggest a beat for the stock this earnings season.