Owens & Minor Inc.
), a leading distributor of medical and surgical supplies,
dropped following the Nov 4 release of its mixed third-quarter
2013 results and a tweaked outlook for the rest of the year.
However, after declining for a couple of days, the stock has
started to normalize Nov 8 onwards.
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OWENS & MINOR (OMI): Free Stock Analysis
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OMI's earnings (excluding acquisition-related and exit and
realignment activities) of 47 cents per share in the third
quarter of 2013 declined 4.1% from 49 cents per share reported in
the year-ago period. Adjusted earnings also missed the Zacks
Consensus Estimate of 49 cents by 4.08%. Adjusted net income
dropped 4.2% to $29.9 million in the quarter.
However, on a reported basis, net earnings climbed 13.7% to $28.0
million or 44 cents per share, from $24.6 million or 39 cents in
the year-ago period.
Revenues in the quarter grew 5.7% to $2,304.6 million and
surpassed the Zacks Consensus Estimate of $2,264 million. The
year-over-year growth was led by the Movianto acquisition, which
boosted the company's international revenues.
OMI's gross margin rose 140 basis points (bps) to 11.86% in the
third quarter, led by positive mix from the International
segment. Selling, general and administrative expenses increased
27.8% to $211.3 million primarily due to the Movianto
Adjusted operating income declined 4.6% to $52.0 million in the
third quarter. The company reported adjusted operating margin of
2.25%, 10 bps lower than the year-ago figure of 2.50%.
Segments in Details
Revenues from the larger
segment improved 2.1% to $2,175 million, largely due to an extra
selling day in the reported quarter. The division continues to be
plagued by sluggish healthcare utilization trends, soft
government purchasing environment along with the company's
continued rationalization of smaller, less profitable healthcare
provider and supplier customers.
Operating margin from this segment slipped 24 bps to 2.35% as a
result of lower margin on sales to hospital customers and higher
healthcare spending. This was partially offset by gains from the
company's sourcing efforts.
Revenues from the
segment rose 59.3% to $128.9 million, driven by the Movianto
acquisition. Operating income from this segment was $0.7 million
in the third quarter compared with an operating loss of $0.6
million in the prior-year quarter.
Owens & Minor exited the third quarter of 2013 with cash and
cash equivalents of $153.8 million against $97.9 million at the
end of 2012. Long-term debt (excluding current portion) slightly
decreased to $214.4 million from $215.4 million at the end of
Cash provided by operating activities in the first nine months of
2013 was roughly $161 million versus $170 million in the same
period last year. Capital expenditure was $25.1 million in the
first nine months of 2013 versus $7.9 million in the year-ago
OMI reiterated its revenue growth guidance in the range of 2% to
4% for 2013. However, management is now forecasting its adjusted
earnings per share at the lower end of the previous range of
$1.90 to $2.00. Adjusted earnings include contribution from
Movianto but exclude exit and realignment costs, as well as
We remain on the sidelines regarding the mixed third-quarter
results posted by Owen & Minor. Higher expenses are putting
pressure on the company's margins and profitability. Moreover,
management's tempered bottom-line outlook for the rest of the
year raises concerns regarding the company's future performance.
This indicates that there is significant end-market pressure in
the underlying healthcare industry.
However, management's strategy to focus on emerging opportunities
in an evolving healthcare environment is encouraging. Further,
the company has signed a five-year contract with HealthTrust, a
Group Purchasing Organization (GPO) to boost its top line.
Additionally, accretion from the Movianto acquisition should help
the business grow in the future.
Owen & Minor currently has a Zacks Rank #3 (Hold). However,
other companies like
Hill-Rom Holdings, Inc.
INSYS Therapeutics Inc.
) are expected to do well in the medical products industry. All
of these carry a Zacks Rank #1 (Strong Buy).