BioScrip EPS Misses, Revenue Beats - Analyst Blog

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Specialty pharmacy services provider, BioScrip Inc. ( BIOS ) reported a loss of 7 cents per share from continued operations in the second quarter of fiscal 2012, worse than the year-ago quarter loss of 3 cents. However, adjusting for certain one-time items, the loss per share came in at 3 cents; considerably lagging year-ago adjusted EPS of 4 cents. The quarter's loss also missed the Zacks Consensus Estimate by 2 cents.

Total revenue in the reported quarter stood at $155.9 million, up 18.5% year over year and exceeding the Zacks Consensus Estimate of $154 million.

In May 2012, BioScrip sold certain Pharmacy Services assets including pharmacy mail operations and community retail pharmacy stores to Walgreen ( WAG ). Following the divestiture, BioScrip restructured its operating segments from Infusion/Home Health Services and Pharmacy Services into three new operating divisions: Infusion Services, Home Health Services and PBM Services.


In the reported quarter, solid revenue growth was attributable to a 23.5% rise in Infusion Services revenue to $111.0 million, a 16.7% increase in PBM Services segment revenue to $28.1 million, partially offset by a 4.6% decline in the company's Home Health Services segment revenues to $17.7 million. Reimbursement reductions from Medicare and the state of Tennessee TennCare program resulted in the year-over-year decline in the Home Health Services segment.

In the reported quarter there was a 32.6% increase in cost of product revenues ($75.1 million) combined with a 20.1% rise in cost of service revenues ($27.7 million). Also, low margin therapy mix in the Infusion Services segment led to a huge 540 basis point (bp) contraction in gross margin to 34.0% in the quarter.  Selling, general and administrative expenses during the quarter surged 10.5% to $44.7 million leading to a 330 bp drag in adjusted operating margin for the quarter to 5.4%.

BioScrip exited the quarter with $138.4 million of cash and cash equivalents. Year-to-date operating cash flow was $42.8 million compared with $9.5 million in the comparable year-ago period. This was due to the collection of accounts receivable retained after the asset sale, net of accounts payable paid related to those businesses.

On July 31, 2012, BioScrip acquired Illinois- based privately held InfuScience, Inc., a provider of alternate site infusion pharmacy services. The acquisition price was $38.0 million in cash. However, it could increase by an additional $3 million within 1 year of the acquisition depending on the performance of the acquired body. InfuScience currently generates $40.0 million in annual revenues.

Outlook

BioScrip increased its fiscal 2012 revenue guidance to $620-$650 million from the earlier guidance of $600-$620 million. The company expects to incur certain short-term expenses and additional costs through the third quarter of 2012, which will impact results.

Our Take

While the company demonstrated strong sales growth during the quarter, the huge pressure on margins was a matter of concern. However, we believe that the asset sale will help BioScrip to emphasize more on areas with long-term growth potential and high returns. With favorable demographic trends, including an aging population in the U.S., the company is optimistic about the future prospects of the home health industry. We also think that the recent acquisition improves the company's position in the Infusion and Home Health industry where it has meaningful strength and competitive advantages. According to the estimates of the National Home Infusion Association ('NHIA'), U.S. health care expenditure in the alternate-site infusion therapy segment currently represents $9-$11 billion a year.

BioScrip retains a short-term Zacks #4 Rank (Sell). Over the long term, we have a 'Neutral' recommendation on the stock.


 
BIOSCRIP INC (BIOS): Free Stock Analysis Report
 
WALGREEN CO (WAG): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BIOS , WAG

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