Provider of drugs to long-term care facilities and nursing
) posted third-quarter 2013 adjusted earnings per share of 91
cents, surpassing the Zacks Consensus Estimate by a penny as well
as the year-ago earnings of 86 cents.
However, the company reported a net loss (including
extraordinary and one-time items) of $66.3 million or 65 cents
per share, compared with a net profit of $61.4 million or 55
cents in the year-ago period. The downside was mainly on account
of a litigation charge of $120 million paid in favor of a
voluntary civil settlement.
Net revenues grew 5.3% year over year to $1,581 million in the
third quarter, beating the Zacks Consensus Estimate of $1,552
million. Strong gains in the Specialty Care Group (SCG) coupled
with continued sales and service efforts in the larger Long-Term
Care Group (LTC) helped offset soft results in the hospice
pharmacy business (now a part of the LTC Group).
Gross margin decreased 134 basis points (bps) year over year
to 23.4% due to increased reimbursement pressure in the hospice
pharmacy business, a shift in revenue mix to lower-margins
specialty dispensing platform and other commercial reimbursement
reductions. Selling, general and administrative (SG&A)
expenses decreased 4.0% to $195.4 million in the quarter.
Net sales of the core LTC Group inched up 0.1% to $1,220
million. We note that this was the first quarter in the past six,
during which Omnicare recorded revenue growth, reflecting
management's successful strategy in leveraging sales and
services. Net organic bed growth also improved in the quarter.
However, adjusted operating margin for this group was 13.1%, down
50 bps year over year.
Net sales of the Specialty Care Group (SCG) jumped 29% to $361
million. This segment continues to maintain its growth momentum,
driven by the company's specialty pharmacy offerings. The group's
operating margin was 8.3% in the quarter, compared with 8.9% in
the prior-year quarter.
Omnicare exited the third quarter with cash and cash
equivalents of $505.7 million, up 11.3% from $454.2 million as of
Dec 31, 2012. Long-term debt (including notes and convertible
debentures) declined 29.7% to $1,426.5 million from $2,030.0
million as of Dec 31, 2012.
Cash flows from operations for the nine months ended
September 30, 2013 were $455 million versus $417 million in
the comparable prior period. Year-to-date operating cash
flow is pegged at $455 million, reflecting benefits from working
In the third quarter, OCR exchanged approximately $180 million
in aggregate principal amount of its outstanding
3.75% convertible notes due 2025 for a newly issued $424
million in aggregate principal amount of new
3.50% convertible note due 2044. Additionally, the
company entered into separate, privately negotiated purchase
agreements to repurchase roughly $5.2 million in aggregate
principal amount of its outstanding 3.75% notes due 2025 and $150
million in aggregate principal amount of its outstanding 7.75%
senior subordinated notes due 2020.
In the third quarter, the company repurchased 1.7 million
shares for an aggregate amount of $81 million, thereby completing
the Accelerated Share Repurchase (ASR) agreement entered in the
second quarter. As of Sep 30, 2013, Omnicare had $129
million of availability under its current share repurchase
Omnicare narrowed its revenue guidance range for 2013 to
$6.2-$6.3 billion from $6.1-$6.3 billion. The Zacks Consensus
Estimate for the full year is pegged at $6.2 billion, which
coincides with the bottom end of the guided range.
Adjusted earnings per share are now expected in the range of
$3.60 to $3.62 as compared with the earlier guided range of $3.56
to $3.64. The Zacks Consensus Estimate for the full year is
pegged at $3.61, which stands at the mid point of the guided
Omnicare also narrowed its expected cash flow (excluding
settlement payments) outlook range to $500-$525 million from the
earlier range of $475-$525 million.
The net loss reported by OCR in its third-quarter results due
to the lawsuit settlement has resulted in negative investor
sentiments. This is reflected in 5.57% fall in the company's
stock to $54.23 on Oct 23.
Nevertheless, we are impressed with the encouraging
third-quarter results, which beat the Zacks Consensus Estimate on
both fronts. The sequential improvement in the LTC Group,
Omnicare's mainstay, and double-digit growth in SCG should propel
revenue growth in the future. Moreover, generic launches in the
next few quarters present potential opportunities. OCR's direct
access to manufacturers and increased exposure to the
institutional pharmacy channel promises better prospects going
However, Omnicare continues to rely on Medicare and Medicaid
programs for a major share of its revenues. In addition, the
company also needs to improve its margins.
OCR currently has a Zacks Rank #3 (Hold). While we choose to
remain on the sidelines regarding this company, medical services
Express Scripts Holding Company
), carrying a Zacks Rank #2 (Buy), is worth a look. Other medical
product stocks that can also be considered include
INSYS Therapeutics, Inc.
Bio-Rad Laboratories, Inc.
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
BIO-RAD LABS -A (BIO): Free Stock Analysis
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
INSYS THERAP (INSY): Free Stock Analysis
OMNICARE INC (OCR): Free Stock Analysis
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