VCA boosts 2016 sales forecasts again as M&A lifts Q2 results

The pet-care industry has long been hailed as a great hedge against an uncertain economy, because even when times are tight, dog and cat owners rarely cut back spending on their furry friends. Hospital chain VCA ($WOOF) continues to capitalize on America’s love of pets–so much so, in fact, that it is boosting its 2016 revenue forecast for the second quarter in a row.
On June 28, VCA announced that its revenues in the second quarter jumped 19% year-over-year to $653.5 million, and its net income was up 18% to $64 million, translating to earnings per share of 78 cents. VCA derives revenues from both its veterinary clinics and its laboratory reference services, but it was the hospital business that really hummed during the quarter, with revenues up 24% to $540.4 million.
VCA had a strong quarter for M&A. It picked up 13 hospitals with a total of $24 million in annual revenues. Then, on May 1, VCA bought Companion Animal Practices, North America (CAPNA) for $344 million, bringing in 56 hospitals and an additional $180 million in yearly sales.
The company said it now expects revenues for the full year to come in between $2.52 billion and $2.54 billion. It had previously told analysts to expect sales of $2.39 billion to $2.41 billion. The company maintained its previous forecast of net income between $210 million and $218 million.
Although the laboratory side of the business grew just 5% during the quarter, VCA’s CEO Bob Antin told analysts during a conference call after the earnings release that he’s pleased with the progress of that unit. “The quarter started a little slowly in April and continued to get stronger and stronger,” he said. Last March, the company bought the Antech Diagnostics business from Abaxis ($ABAX) for $21 million–an addition that continues to be a strong growth driver for the company, Antin added.
VCA has been working on expanding a menu of services that feed into its veterinary offerings, including Camp Bow Wow, a chain of doggy daycare centers that provide medical consultations to clients and referrals to its hospitals. The company is also rolling out a suite of new technology tools, including the ability for clients to communicate with their veterinarians via text messaging. When asked during the conference call how the rollout was progressing, Antin said the technology is in place, but that getting VCA’s staff into the habit of using it is proving to be a challenge. Ideally, he said as an example, a veterinarian performing surgery would take a break to text an update to the pet’s owner. But that doesn’t come naturally, Antin admitted. ”The issue is you’re changing behavior,” he said, adding, “the first part is getting the professionals to do what they do in their personal life.”
VCA’s consistent growth has made it a favorite on Wall Street.  A recent profile in Investors Business Daily noted that VCA’s profit and sales growth has remained steady since 2011, driven largely by an increase in pet ownership. “Big money is flowing into defensive areas such as food, beverage, tobacco and utility stocks,” ETF manager Matthew Tuttle of Tuttle Tactical Management said in an interview with IBD. “Pet-care stocks fit that mold and have caught a strong bid recently as consumers now consider pets as part of their family.”
– here’s VCA’s earnings release
– read a transcript of the earnings call at Seeking Alpha
– read more at IBD