VCA Antech Reports In-Line Results

vca

After the markets closed on Thursday, February 13, VCA Antech (NASDAQ:WOOF) reported fourth-quarter results that were generally in line with expectations. Sales of $435.5 million grew 4.1% from the prior-year period and were a bit shy of the $444.5 million consensus forecast; adjusted earnings per share registered at $0.31—up 10.7% year-over-year and spot on the Street’s $0.31 target.

The animal hospital division reported 0.9% same-store growth, which represents a slight deceleration from the 1.1% organic growth rate reported during the third quarter. Fourth-quarter organic growth was also at its lowest of the year and continued the trend of decelerating organic growth through 2013. Moreover, the company’s organic growth continues to lag broader industry trends, in our view. For example, Idexx Laboratories (NASDAQ:IDXX) indicated that based on data from roughly 4,000 practices across the United States, fourth-quarter volumes increased by 2.1% with overall same-store revenue up 5.5%.

Despite only modest organic growth, same-store hospital gross margins increased by 60 basis points year-over-year, to 13.0%, given solid cost controls. Overall hospital gross margins were up 40 basis points, to 12.5%. Although the continued same-store margin expansion in the hospital division remains encouraging, we question the sustainability of these gains absent stronger same-facility growth.

The diagnostic laboratory division experienced another solid quarter with same-store growth increasing 5.3%, versus 6.3% organic growth in the third quarter and exactly half of the 10.6% organic growth at Idexx. Lab margins again were solid with same-facility gross margins registering at 44.3%, up roughly 210 basis points from the year-ago period. Management also provided a first look at 2014 guidance as follows: sales between $1.90 billion and $1.92 billion (versus the consensus target of $1.9 billion) and adjusted earnings per share between $1.77 and $1.87. Guidance appears predicated on a modest rebound in animal hospital sales throughout 2014 and relatively similar to the organic lab growth rate for the year.

 

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