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Omnicare Inc. (OCR)
Q3 FY08 Earnings Call
October 30, 2008, 11:00 AM ET
Cheryl D. Hodges - Sr. VP, IR
Joel F. Gemunder - President and CEO
David W. Froesel, Jr. - Sr. VP and CFO
Jason Gurda - Leerink Swann
Lisa Gill - JPMorgan
Glen Santangelo - Credit Suisse
Bryan Sekino - Barclays Capital
Charles Rhyee - Oppenheimer & Co.
Melissa Jaffe - Merrill Lynch
Chris Rigg - Soleil Securities
Randall Stanicky - Goldman Sachs
Aaron Gornin - Bank of America Securities
Previous Statements by OCR
» Omnicare, Inc. Q3 2009 Earnings Call Transcript
» Omnicare, Inc., Q4 2008 Earnings Call Transcript
» Omnicare, Inc. Q2 2008 Earnings Call Transcript
Cheryl D. Hodges - Senior Vice President, Investor Relations
Thanks, Regina. Good morning everyone and welcome to Omnicare’s Third Quarter 2008 earnings conference call. Here today from Omnicare are Joel Gemunder, President and CEO, Dave Froesel, Senior Vice President and Chief Financial Officer and myself Cheryl Hodges, Senior Vice President, Investor Relations.
Before we begin let me remind you that as we conduct this call various remarks that we make concerning our expectations, predictions, plans and prospects constitute forward-looking statements as a result of a variety of factors including those identified in this morning’s news release and in our various filings with the SEC.
You are also cautioned that any forward-looking statements reflect management’s current views only and that the company undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future.
For simplicity sake and to focus on what we believe are the best indicators of our operating performance, we will discuss our results today excluding special items and for the CRO business reimbursable out-of-pocket expenses in all periods.
A reconciliation of this non-GAAP information has been attached to our press release and is also available on our website under supplemental financial information on the Investors page.
With that let me turn the call over to Joel.
Joel F. Gemunder - President and Chief Executive Officer
Thank you Cheryl and good morning everyone. Thanks for joining us today to discuss our results for the third quarter of 2008 and the outlook for the balance of the year. It is certainly an understatement to say that it is an historic time in the markets and in the world economies.
So, we are particularly pleased to report that adjusted earnings for the third quarter beat consensus expectations by $0.12 per share or by more than 24% and the prior quarter by $0.15 or 33%.
Clearly these results were well above even our own expectations and while we did see stronger than expected trends in the pharmaceutical marketplace generally, we saw better than anticipated performance in the number of operational areas.
So, we are encouraged by these [inaudible] of continued stabilization and progress in our initiatives to enhance growth and profitability in our business. With the results for this quarter we have returned to year-over-year growth.
Sales of $1.6 billion in the third quarter of 2008 were 4% ahead of the third quarter of 2007. Operating income was up 19% and adjusted earnings per diluted share of $0.61 were up 39% from the $0.44 earned in the 2007 third quarter.
This of course was driven by a strong step up in our sequential results with sales up 3%, operating profit up 23% and diluted earnings per share up 33% from last quarter. We saw improvement up and down the P&L.
Sales were higher gross margins widened by 110 basis points. SG&A came down as a percent of sales and bad debt expense remained in line. So operating and EBITDA margins expanded 150 and 160 basis points respectively. And while we had slightly higher interest expense, we also benefited from a full quarters impact of our stock repurchase program, which we completed in the second quarter.
Now, let me touch on some of the highlights. First our sales growth both on a year-over-year as well as on a sequential basis was attributable to some key trends in the pharmaceutical marketplace namely drug… strong drug price inflation on branded drugs and increased utilization of higher acuity drugs and biologics.
And importantly exceptional growth in our specialty pharmacy services business including notably the acquisition of Advanced Care Scripts in mid July. These factors more than offset the impact of increased penetration of generic drugs modestly lowered net bed served and a reduction in the utilization and reimbursement of certain drugs. As noted in our press release we served 1,432,000 beds at the end of September including 67,000 patients under the patient assistance programs.
On the surface this is an overall net decline of 6,000 beds sequentially half of which is attributable to the natural volatility in patient assistance programs. The remaining net bed decline of 3,000 represents a 67% improvement over the June quarter. But this doesn’t tell the whole story.
During the quarter, a total of 9,300 beds will voluntarily foregone for pricing and payment terms or represent facilities sold or closed. Had we not given up these beds or lost them due to factors outside of our control we would have been in positive territory by over 6,000 beds.
So, we continue to make progress on our initiatives to restore net bed growth. Important to our results for the quarter the number of beds served including renewals of at risk accounts by our specialized customer retention team for the third quarter was approximately 12,200 beds and represents roughly $53 million in annualized revenues. This brings the year-to-date total retained by this team in 2008 to 41,000 beds and about $211 million in annualized revenue saved equal to 4.6% of total pharmacy services revenues over this period.
Moreover beds added are brought into service for the quarter were up 12% sequentially and that their highest level in the last four quarters. Also acquisition activity was robust adding a substantially higher number of beds than in the second quarter and reaching its highest quarterly level this year.
We are also encouraged is that new contract signings are continuing to outpace our performance last year. Excluding national accounts, which can be lumpy contract signings by our sales force and pharmacy operating staff combined were up 33% versus the third quarter of last year reflecting a large measure and encouraging year-over-year improvement in the quality, size and productivity of our sales force.
Our gross margins moved in a positive direction for the second consecutive quarter due primarily to the impact of the increased use of generic drugs. And as you know, several new generics important in the geriatric marketplace were launched this quarter including Risperidone, which is generic Risperdal, divalproex or generic Depakote ER and lamotrigine the generic version of Lamictal just to name a few.