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VCA Antech Isn't A Dog
There are three companies benefiting from our love of animals. One of them, VCA Antech (Nasdaq:WOOF), continues to do well despite this recession. While not setting growth records by any means, it's still producing positive results, begging the question whether its stock is worth a sniff right now.
Fourth Quarter Blues
Revenues increased 6.7% to $303.2 million and diluted earnings per share were up 3.4% to 30 cents. The animal hospitals saw revenues increase 9.4% to $229 million, thanks in part to its acquisitions. Most impressive, operating margins of the animal hospitals increased 190 basis points to 15.2%, due to cost controls implemented as well as cost savings achieved through a larger revenue base. While same-store revenues were flat, the gross margins increased by 210 basis points. The only real downside for the quarter was a 360 basis point reduction in laboratory gross margins, from 45.9% in Q4 2007 to 42.3% in Q4 2008. However, the margins at the labs are three times those of the animal hospitals, providing a nice profit cushion when business is slow, as it is right now. In terms of full-year numbers, revenues came in at $1.28 billion, up 10.5% for the year and diluted earnings per share (EPS) were up 9.9% to $1.55.
The Short-Term Is Cloudy
In the fourth quarter conference call, CFO Tom Fuller said, "We continue to see weakness in the economy ... having said that, we have done a fantastic job of managing our cost structure, and I think the industry is a great place to be. Pets continue to be a very important part of our lives." While the short-term is certainly more difficult to predict, I do think it will have a better time of things than pet food manufacturers like Procter & Gamble (NYSE:PG) and Colgate Palmolive (NYSE:CL) who are losing business to grocery store brands like Wal-Mart (NYSE:WMT), Safeway (NYSE:SWY) and others. You see, pet owners might trade a costlier brand for a cheaper one to save money, but most won't balk at the cost of a blood test checking Fido for kidney problems. Those that would probably aren't its customers. Therefore, I see no problems with its current 2009 guidance of between $1.36 billion and $1.39 billion in revenue as well as diluted earnings per share between $1.56 and $1.63. That's flat to 10% growth in revenue and earnings, which is nothing to sneeze at given the state of the economy.
Bottom Line
VCA Antech's stock is down 19.5% since April 2008. It's holding up far better than the S&P 500, which is down 43.6% in the same period. In the fourth quarter, it beat analyst's estimates by 30% ; prompting Piper Jaffrey's Mark Arnold to comment, "We continue to like the long-term growth potential for VCA Antech and believe management's ability to continue to manage margins and grow revenues and earnings in this difficult environment will result in significant earnings acceleration when the economy does stabilize and improve."
For further reading, see The Economics Of Pet Ownership.
Fourth Quarter Blues
Revenues increased 6.7% to $303.2 million and diluted earnings per share were up 3.4% to 30 cents. The animal hospitals saw revenues increase 9.4% to $229 million, thanks in part to its acquisitions. Most impressive, operating margins of the animal hospitals increased 190 basis points to 15.2%, due to cost controls implemented as well as cost savings achieved through a larger revenue base. While same-store revenues were flat, the gross margins increased by 210 basis points. The only real downside for the quarter was a 360 basis point reduction in laboratory gross margins, from 45.9% in Q4 2007 to 42.3% in Q4 2008. However, the margins at the labs are three times those of the animal hospitals, providing a nice profit cushion when business is slow, as it is right now. In terms of full-year numbers, revenues came in at $1.28 billion, up 10.5% for the year and diluted earnings per share (EPS) were up 9.9% to $1.55.
The Short-Term Is Cloudy
In the fourth quarter conference call, CFO Tom Fuller said, "We continue to see weakness in the economy ... having said that, we have done a fantastic job of managing our cost structure, and I think the industry is a great place to be. Pets continue to be a very important part of our lives." While the short-term is certainly more difficult to predict, I do think it will have a better time of things than pet food manufacturers like Procter & Gamble (NYSE:PG) and Colgate Palmolive (NYSE:CL) who are losing business to grocery store brands like Wal-Mart (NYSE:WMT), Safeway (NYSE:SWY) and others. You see, pet owners might trade a costlier brand for a cheaper one to save money, but most won't balk at the cost of a blood test checking Fido for kidney problems. Those that would probably aren't its customers. Therefore, I see no problems with its current 2009 guidance of between $1.36 billion and $1.39 billion in revenue as well as diluted earnings per share between $1.56 and $1.63. That's flat to 10% growth in revenue and earnings, which is nothing to sneeze at given the state of the economy.
VCA Antech's stock is down 19.5% since April 2008. It's holding up far better than the S&P 500, which is down 43.6% in the same period. In the fourth quarter, it beat analyst's estimates by 30% ; prompting Piper Jaffrey's Mark Arnold to comment, "We continue to like the long-term growth potential for VCA Antech and believe management's ability to continue to manage margins and grow revenues and earnings in this difficult environment will result in significant earnings acceleration when the economy does stabilize and improve."
For further reading, see The Economics Of Pet Ownership.
by
Will Ashworth
Will Ashworth lives and works in Toronto, Canada. He's worked in and around the financial services industry for much of his adult life. He loves investing and is passionate about helping others learn how to put their money to work.
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