Shares of IDEXX Laboratories, Inc. (IDXX, Financial), a leader in veterinary diagnostics, detracted from performance after outperforming meaningfully during recent periods. We attribute a portion of the stock’s decline to greater-than-expected foreign exchange headwinds. Separately, the company noted increased competition and lower prices in a sub-segment of its product portfolio, which we estimate accounts for just 3% of total revenue. We believe this enhanced competition stems from the company’s recent transition to a direct sales strategy in the U.S., and we are optimistic that management will successfully react with pricing programs to better serve these customers in the future. We expect accelerating organic revenue growth over the next several years, driven by productivity benefits from its new domestic sales strategy, additional products, and ongoing success in international markets. We believe that faster top line growth should lead to accelerated margin expansion, creating a virtuous cycle of earnings growth, reinvestment, and returns of capital to shareholders.
From Baron Funds' second quarter commentary.
