Idexx Earnings: Price Hikes Drive Robust Quarterly Results

Idexx Labs IDXX posted first-quarter performance that featured significant pricing gains, and after tweaking our full-year projections to accommodate these changes, we’ve modestly raised our fair value estimate to $351 per share. The firm’s companion animal group returned to low-double-digit growth in constant currency in the first quarter, consistent with Idexx’s longer-term growth before the pandemic disrupted the pet market. We continue to believe that vet and animal hospital capacity remains constrained, but conditions appear to be improving just in time for the seasonal uptick in vet care that comes in the warmer months. There was little in the quarter to change our thinking on Idexx’s narrow economic moat.

We were somewhat taken aback by the magnitude of price gains during the quarter—up 8%-9%—which more closely resembles the pricing gains seen in consumer goods of late than what we’ve seen in human healthcare. Though management indicated the price increases seemed to be accepted, we remain cautious about potential softening of demand over the coming quarters, especially if inflation continues to squeeze household budgets. We doubt this price increase would instigate a wholesale pullback in pet health spending as the Great Recession did, but it might be enough to cause pet owners to delay preventative care, for example. Considering we’ve had a long-standing concern about price elasticity in pet healthcare, we plan to watch this carefully as the year unfolds.

Finally, we are skeptical that the impending acquisition of Heska (pet diagnostics) by Mars holds any threat to Idexx’s leadership position in this market. Though we think it’s likely that Heska analyzers would easily become fixtures in Mars’ VCA animal hospitals, we’re more skeptical that efforts to place Heska machines in other hospitals will succeed, because Idexx has cultivated such close, collaborative relationships with vets who rely on Idexx for help with clinic profitability.