ABAX Abaxis, Inc. (delisted)

Abaxis Inc. (ABAX) reported third quarter 2012 EPS of 13 cents, missing the year-ago quarter EPS by 4 cents, as well as the Zacks Consensus Estimate of 16 cents.

Net sales during the quarter increased 5% year over year to $37.9 million, but lagged the Zacks Consensus Estimate of $41 million. The year-over-year growth was based on higher sales in both North America (up 6% to $31.8 million) and in the international market (up 2.8% to $6.0 million).

Within the customer group, Veterinary market revenues witnessed an upside of 8% in the reported quarter to $28.5 million while the Medical Market sales remained flat year over year at $8.1 million. However, sales from the Other customer group plummeted 17.4% year over year to $1.2 million. Excluding sales to the US government, worldwide Medical sales spiked 15% year over year to $7.5 million.

Total consumable sales climbed 9% year over year to $2.3 million while instrumental sales decreased by an aggregate of $210,000 or 2% year over year. Moreover, sales from medical and veterinary reagent discs increased 5% to $20.4 million.

Although gross profit in the quarter increased 3.5% year over year to $20.5 million, the company witnessed 106 basis points (bps) drag in gross margin to 54.1%. Alongside, the company witnessed a 13.7% rise in operating expenses to $15.8 million. As a result, operating income decreased 20.5% to $4.6 million, leading to a 399 bps contraction in operating margin to 12.25%.

Abaxis exited the third quarter with cash and cash equivalents and short-term investments of $57.7 million, down from $69.5 million at the end of March 2011.

Abaxis operates in a niche market of portable medical and veterinary blood analysis systems. Low worldwide penetration provides scope for substantial growth in this niche industry. However, the company’s margins continue to disappoint owing to several challenges. We also remain apprehensive based on Abaxis’ dependency on distributors to sell its products and increased legal expenses. Besides, the presence of big players like Alere (ALR) has made the human and veterinary diagnostic market highly competitive. Furthermore, soft international market is also a headwind for Abaxis.

Currently, Abaxis carries a Zacks #4 Rank (short-term Sell rating). Over the long term, we are ‘Neutral’ on the stock.

 
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