MWI Veterinary Supply : Announces 2014 Second Quarter Results and Reaffirms Fiscal 2014 Guidance

BOISE, ID--(Marketwired - May 6, 2014) - MWI Veterinary Supply, Inc. (NASDAQ: MWIV) (the "Company") announced financial results today for its second quarter ended March 31, 2014.

Highlights:

• Total revenues were $721.3 million for the quarter, 28.1% higher than revenues for the same period in the prior fiscal year. Excluding the impact of the acquisition of substantially all of the assets of IVESCO Holdings, LLC ("IVESCO"), which closed on November 1, 2013, revenue growth was 8.0% in the United States for the quarter compared to the same period in the prior fiscal year.
• This strong revenue growth was achieved in spite of 17 days during the quarter when at least one distribution center was closed due to severe weather, compared to 4 days in the same period in the prior fiscal year.
• Selling, general and administrative ("SG&A") expenses as a percentage of total revenues were 8.4% for the quarter, compared to 8.5% for the same period in the prior fiscal year. SG&A expenses for the quarter include integration and acquisition related costs of $0.7 million.
• Operating income was $27.4 million for the quarter, 13.2% higher than operating income for the same period in the prior fiscal year.
• Net income was $16.8 million for the quarter, 11.1% higher than net income for the same period in the prior fiscal year.
• Diluted earnings per share were $1.32 for the quarter, compared to $1.19 for the same period in the prior fiscal year, an increase of 10.9%.
• Internet sales to independent veterinary practices and producers in the United States grew by 24.5% for the quarter compared to the same period in the prior fiscal year. 
• Our Diagnostics Unlimited program revenues to all customers reached approximately $43.7 million for the quarter, compared to approximately $37.8 million for the comparable period in the prior year, a growth rate of approximately 16%.
• Excluding IVESCO, revenues from our veterinary pharmacy programs in the United States increased approximately 17% to $59.0 million for the quarter compared to $50.4 million in the same period in the prior fiscal year.

"Our results for the quarter were impressive in spite of the severe winter weather conditions that impacted our operations and sales," said Jim Cleary, President and Chief Executive Officer. "Our revenue growth was strong and we are very pleased with the tremendous progress our combined team has made towards integrating IVESCO."

Quarter ended March 31, 2014 compared to quarter ended March 31, 2013

Total revenues increased 28.1% to $721.3 million for the quarter ended March 31, 2014, compared to $563.1 million for the quarter ended March 31, 2013. Revenues from the IVESCO business were $120.2 million for the quarter ended March 31, 2014. Excluding the impact of IVESCO revenues, revenue growth in the United States was 8.0% for the quarter ended March 31, 2014, compared to the same period in the prior fiscal year. Revenue growth was impacted by severe weather conditions experienced during the quarter. Revenues in the United Kingdom decreased 0.8% from the same period in the prior fiscal year as a result of a 6.8% organic decrease, offset in part by a 6.0% increase related to foreign currency translation. Commissions increased 15.3% to $5.9 million for the quarter ended March 31, 2014, compared to $5.1 million for the quarter ended March 31, 2013. The increase in commissions was due primarily to an incentive earned during the current quarter that was not available in the same quarter in the prior year.

Gross profit increased by 21.9% to $91.1 million for the quarter ended March 31, 2014, compared to $74.7 million for the quarter ended March 31, 2013. Gross profit as a percentage of total revenues was 12.6% for the quarter ended March 31, 2014, compared to 13.3% for the quarter ended March 31, 2013. Product margin as a percentage of total revenues decreased partially due to the addition of the IVESCO business in November 2013. The product margin on this business is lower than our overall product margin. This serves to reduce the overall product margin of the consolidated company when compared to our results for the same period in the prior year. In addition, there were pricing pressures during the quarter as market participants strove to achieve sales goals. Vendor rebates for the quarter ended March 31, 2014 increased by $3.9 million compared to the quarter ended March 31, 2013, primarily due to the growth in revenues and timing of manufacturer programs.

Operating income increased 13.2% to $27.4 million for the quarter ended March 31, 2014, compared to $24.2 million for the quarter ended March 31, 2013. SG&A expenses increased 26.7% to $60.7 million for the quarter ended March 31, 2014, compared to $47.9 million for the quarter ended March 31, 2013. The increase in SG&A expenses was primarily due to the addition of the IVESCO business in November 2013. We incurred approximately $0.7 million of integration and acquisition related costs during the quarter in connection with our recently completed IVESCO acquisition. SG&A expenses as a percentage of total revenues improved to 8.4% for the quarter ended March 31, 2014, compared to 8.5% for the quarter ended March 31, 2013.

Our effective tax rate for the quarter ended March 31, 2014 was 38.6%, compared to 37.9% for the quarter ended March 31, 2013. The increase was primarily due to higher estimated state income taxes.

Net income increased 11.1% to $16.8 million for the quarter ended March 31, 2014, compared to $15.1 million for the quarter ended March 31, 2013. Diluted earnings per share were $1.32 and $1.19 for the quarters ended March 31, 2014 and 2013, respectively, an increase of 10.9%. 

Six months ended March 31, 2014 compared to six months ended March 31, 2013

Total revenues increased 24.0% to $1.409 billion for the six months ended March 31, 2014, compared to $1.136 billion for the six months ended March 31, 2013. Excluding the revenues resulting from the acquisition of substantially all of the assets of IVESCO during the month of November 2013, revenue growth in the United States was 8.8% for the six months ended March 31, 2014 compared to the six months ended March 31, 2013. Revenue growth was impacted by severe weather conditions experienced during the quarter ended March 31, 2014. Revenues in the United Kingdom decreased 4.7% for the six months ended March 31, 2014, consisting of a 7.9% organic decrease, offset in part by a 3.2% increase related to foreign currency translation. Commissions increased 2.6% to $9.7 million for the six months ended March 31, 2014, compared to $9.5 million for the six months ended March 31, 2013. 

Gross profit increased by 18.8% to $180.1 million for the six months ended March 31, 2014, compared to $151.6 million for the six months ended March 31, 2013. Gross profit as a percentage of total revenues was 12.8% for the six months ended March 31, 2014, compared to 13.3% for the six months ended March 31, 2013. Product margin as a percentage of total revenues decreased partially due to the addition of the IVESCO business in November 2013. The product margin on this business is lower than our overall product margin. This serves to reduce the overall product margin of the consolidated company when compared to our results for the same period in the prior year. In addition, there were pricing pressures as market participants strove to achieve sales goals. Vendor rebates for the six months ended March 31, 2014 increased by approximately $6.5 million compared to the six months ended March 31, 2013, primarily due to the growth in revenues and timing of manufacturer programs.

Operating income increased 12.3% to $57.6 million for the six months ended March 31, 2014, compared to $51.3 million for the six months ended March 31, 2013. SG&A expenses increased 22.4% to $116.8 million for the six months ended March 31, 2014, compared to $95.4 million for the six months ended March 31, 2013. The increase in SG&A expenses was primarily due to the addition of IVESCO in November 2013. SG&A expenses as a percentage of total revenues were 8.3% for the six months ended March 31, 2014 compared to 8.4% for the six months ended March 31, 2013. We incurred approximately $1.6 million of integration and acquisition related costs during the six months ended March 31, 2014 in connection with our recently completed IVESCO acquisition.

Our effective tax rate for the six months ended March 31, 2014 was 38.8%, compared to 38.1% for the six months ended March 31, 2013. The increase was primarily due to higher estimated state income taxes.

Net income increased 10.6% to $35.2 million for the six months ended March 31, 2014, compared to $31.9 million for the six months ended March 31, 2013. Diluted earnings per share were $2.76 and $2.51 for the six months ended March 31, 2014 and 2013, respectively, an increase of 10.0%.

Business Outlook

The Company reaffirms its estimates for the fiscal year ending September 30, 2014. The Company estimates that revenues will be from $2.89 billion to $2.94 billion, which represents growth of 23% to 25% compared to revenues in fiscal year 2013. The Company estimates that diluted earnings per share will be from $5.47 to $5.67 per share, which represents growth of 10.5% to 14.5% compared to diluted earnings per share in fiscal year 2013. These estimates include the impact of the acquisition of substantially all of the assets of IVESCO, which is expected to be accretive during the eleven months of ownership in fiscal 2014, and include the effect of integration and acquisition related costs. Additionally, these estimates are based on the Company's current vendor contracts which typically undergo annual renegotiation and which may include terms such as rebates, commissions and exclusivity requirements. 

Conference Call

The Company will be hosting a conference call on May 6, 2014 at 11:00 a.m. eastern time to discuss in greater detail these results and its fiscal year 2014 business outlook. Participants can access the conference call by dialing [phone]. International callers can access the conference call by dialing [phone]. The conference call will also be carried live on the Company's web site at www.mwivet.com. Audio replay will be made available through May 13, 2014 by calling [phone] for calls within the United States or [phone] for international calls using the passcode 33820922. The conference call will also be available on the Company's web site, www.mwivet.com.

MWI is a leading distributor of animal health products across the United States of America and United Kingdom. MWI sells both companion animal and production animal products including pharmaceuticals, vaccines, parasiticides, diagnostics, micro feed ingredients, supplies, pet food, capital equipment and nutritional products. MWI also is a leading innovator and provider of value-added services and technologies used by veterinarians and producers. For more information about MWI, please visit our website at www.mwivet.com. For investor relations information please contact Mary Pat Thompson, Senior Vice President of Finance and Administration, and Chief Financial Officer at [phone] or email [e-mail].

Certain statements contained herein that are not descriptions of historical facts are "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in filings made by the Company with the Securities and Exchange Commission. Many of the factors that will determine the Company's future results are beyond the ability of management to control or predict. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking information include the impact of vendor consolidation on our business; changes in or availability of vendor contracts or rebate programs; vendor rebates based upon attaining certain growth goals; transitional challenges associated with acquisitions, including the failure to retain customers and the disproportionate demands on management resources to integrate acquired businesses; financial risks associated with acquisitions and investments; changes in the way vendors introduce/deliver products to market; seasonality; competition; possible changes in the use of feed additives (antibiotics, growth promotants) used in production animal products due to trade restrictions, animal welfare and/or government regulations; an outbreak of foodborne diseases in production animal products; inability to ship products to the customer as a result of technological or shipping disruptions; the recall of a significant product by one of our vendors; risks associated with our international operations; an outbreak of infectious disease in animals; extended shortage or backorder of a significant product by one of our vendors; the impact of tightening credit standards and/or access to credit on behalf of our customers and suppliers; a disruption caused by adverse weather (i.e. drought) or other natural conditions or disasters; exclusivity requirements with certain vendors that may prohibit us from distributing competing products manufactured by other vendors or margin reductions if we become a non-exclusive distributor; the impact of general economic trends on our business; our intellectual property rights may be inadequate to protect our business; the timing and effectiveness of marketing programs or price changes offered by our vendors; the timing of the introduction of new products and services by our vendors; unforeseen litigation; the ability to borrow on our revolving credit facility, extend the terms of our revolving credit facility or obtain alternative financing on favorable terms or at all; and risks from potential increases in variable interest rates.Other factors include changes in the rate of inflation; changes in state or federal legislation or regulation; the continued safety of the products the Company sells; and changes in the general economy. Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of MWI Veterinary Supply, Inc.

MWI Veterinary Supply, Inc.
(Unaudited - Dollars and shares in thousands, except per share amounts)
Condensed Consolidated Statements of Income		Quarter Ended March 31,								Six Months Ended March 31,
		2014				2013				2014				2013
Revenues		$	721,272			$	563,114			$	1,408,531			$	1,135,962
Cost of product sales			630,212				488,435				1,228,383				984,354
Gross profit			91,060				74,679				180,148				151,608
Selling, general and administrative expenses			60,723				47,928				116,796				95,388
Depreciation and amortization			2,906				2,513				5,715				4,905
Operating income			27,431				24,238				57,637				51,315
Interest expense			(356	)			(223	)			(595	)			(426	)
Other income			237				294				538				591
Income before taxes			27,312				24,309				57,580				51,480
Income tax expense			(10,536	)			(9,209	)			(22,365	)			(19,629	)
Net income		$	16,776			$	15,100			$	35,215			$	31,851
Net income per share - diluted		$	1.32			$	1.19			$	2.76			$	2.51
Weighted average common shares outstanding - diluted			12,748				12,709				12,745				12,702

				March 31,			September 30,
Condensed Consolidated Balance Sheets				2014			2013
Assets
	Cash			$	2,362		$	953
	Receivables, net				387,034			307,445
	Inventories				414,896			326,093
	Prepaid expenses and other current assets				4,296			6,004
	Deferred income taxes				3,461			2,327
		Total current assets			812,049			642,822
	Property and equipment, net				47,148			39,183
	Goodwill				72,546			71,150
	Intangibles, net				43,188			40,490
	Other assets, net				9,943			8,910
		Total Assets		$	984,874		$	802,555
Liabilities
	Credit facilities			$	112,533		$	18,801
	Accounts payable				373,889			324,057
	Accrued expenses and other current liabilities				19,644			21,816
	Current portion of capital lease obligations				48			103
	Total current liabilities				506,114			364,777
Deferred income taxes					9,690			9,321
Long-term debt and capital lease obligations					3			16
Other long-term liabilities					2,069			2,122
Stockholders' Equity					466,998			426,319
Total Liabilities and Stockholders' Equity				$	984,874		$	802,555