J.P Morgan: Animal Health International Reports Earnings Miss

Animal Health International

this morning reported 1QF11 GAAP EPS of ($0.02), and $0.02 on a cash basis, which was $0.05 below our expectations and consensus. Above anticipated revenue was more than offset by lower than expected gross margin, which resulted from the recognition of Pfizer rebates being pushed into 2QF11 and lower margins on vet sales. During the quarter, the company refinanced its debt, removing an overhang from the stock. The company announced a new $130M revolver maturing August 2015 at LIBOR plus 2.25%-3.0%, depending on the company's leverage ratio. A new term note of $43M matures in Nov. 2015, and carries a 14.25% interest rate. Management reiterated FY11 EBITDA guidance of $25-$27M, which exceeds J.P Morgan's $22.7M estimate. AHII shares trade at 6.6x our CY11 EPS estimate of $0.38, a 52% discount to the rest of our healthcare distribution coverage universe, which we believe factors in low visibility around earnings going forward. J.P Morgan has a Neutral rating on AHII AHII closed Monday at $2.51