The National Veterinary Care Ltd (ASX: NVL) share price has fallen 9% in early trade after giving the market an update for its FY18 result.
The veterinary clinic business said that it expects 'underlying' revenue for the year to be between $81.5 million to $82.3 million. It said that weaker trading conditions in the final two months will result in a lower underlying earnings before interest, tax, depreciation and amortisation (EBITDA) margin.
According to the company, revenue in its general clinics was below expectations in the final two months. This seems to be following on from weakness that Greencross Limited (ASX: GXL) experienced at the half-year result.
National Vet Care also said that its efforts to reduce wages as a percentage of revenue is taking longer to implement than expected.
Three recent acquisitions also settled later than expected, which hurt the projected revenue in the final quarter.
Statutory revenue is still expected to be more than 25% higher compared to FY17, whilst the gross margin will be in line with FY17.
The key change to guidance was that the EBITDA margin is now expected to be in the range of 15% to 16% instead of 16% to 17%. This is a fairly significant decline compared to the FY17 underlying EBITDA margin of 18.1%.
At worst, National Vet Care appears to be forecasting a small increase compared to FY17's underlying EBITDA figure, but not much of an increase.
The vet company also guided that FY19 'underlying' revenue would be at least 25% higher, the gross margin will be in line with FY18 and that the underlying EBITDA margin will be 16%.
National Vet Care believes FY19 will be a better year. It points to a $19 million increase in its debt facilities for acquisitions, an increase of 72% of its pet membership program during F18 and growth of its management services business by 23% during FY18 as reasons why FY19 could be a positive year.
Foolish takeaway
The veterinary industry seems to be going through a bit of a rough patch at the moment. I still believe that National Vet Care presents a good growth opportunity over the long-term, but I want to see the full-year result before saying this price is a good time to buy.
The key will be for no further EBITDA margin deterioration in FY19. However, I will continue to hold my shares for the long-term.
