Omnicare, Inc. (OCR)
Q3 2009 Earnings Call Transcript
November 5, 2008, 11:00 am ET
Cheryl Hodges – SVP, IR
Joel Gemunder – President & CEO
Dave Froesel – SVP & CFO
Anton [ph] – RBC Capital
Brendan Strong – Barclays Capital
A.J. Rice – Soleil Securities
Jason Gurda – Leerink Swann
Asif [ph] – JPMorgan
Steven Valiquette – UBS
Alan Fishman – Thomas Weisel Partners
Previous Statements by OCR
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Thank you, Carey, and good morning, everyone. Welcome to Omnicare's third quarter 2009 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 results from continuing operations and will also exclude the effects of certain accounting changes and special items for all periods in our discussion today.
A reconciliation of this non-GAAP information has been attached to our press release and is also available on our website.
Before I turn the call over Joel, I just like to point out that we’ve made a slight change to the format for this earnings call. In order to make our call more efficient for you, we are going to focus our prepared remarks on what drove our performance and our thoughts about the industry with the assumption that you can easily find information such as quarterly comparisons and the like in our press release on our website and in our 10-Q, which we have also filed today.
With that, let me turn the call over to Joel.
Well, thank you, Cheryl, and good morning, everyone. Thanks for joining us today to discuss our results for the third quarter 2009. And we are pleased to report that third quarter earnings before favorable tax adjusted met Street consensus expectation. And we also generated exceptionally strong cash flow. This quarter’s performance is a reflection of the continued execution of our strategic initiatives and our ability to capitalize on the significant scale advantages we posses in the market. There were a number of factors that characterized the quarter including sequential and year-over-year net bed growth; certain favorable trends in the pharmaceutical marketplace; continued robust growth in our specialty pharmacy business; and favorable performance in the hospice pharmacy. Then a sizable ramp-up in savings from the Omnicare Full Potential Plan and further strategic sourcing savings from non-drug expenditures.
Sales for the third quarter of 2009 of $1.54 billion were higher sequentially, but modestly lower on a year-over-year basis. And while gross margin of 23.8% for the third quarter was also lower as compared to the year-earlier period, this was mostly offset by a sizable reduction in SG&A, which contributed approximately 140 basis points to operating margins compared to the prior year, I should say compared with the prior year.
This brought our operating profit for the third quarter 2009 to approximately $143 million or 9.2% of revenues. And as I mentioned earlier, aside from a favorable income tax item of $19 million, or $0.16 per share, our adjusted earnings per share were in line with Company guidance and Street consensus.
Now, with respect to our Pharmacy Services segment, sales of $1.5 billion were also up sequentially, and modestly lower year-over-year. We saw revenues per bed of $1,087 for the quarter follow the same pattern. And we continue to see robust drug price inflation during the quarter in the neighborhood of 7% annualized. We also saw a continuation of the trends in the nursing home market toward the use of higher acuity drugs such as hydrocele [ph], biologic drugs such as Copaxone and branded drugs with new indication such as (inaudible).
While these trends benefited our sales performance during the period, it was in part offset by the growing utilization of generics. In fact, our generic dispensing rate for the third quarter of 2009 reached 73.4%, a 280 basis points increase year-over-year. During the third quarter specifically, a modest number of drugs relevant to our business came off patent, including Casodex [ph], Frograb [ph], Rasodine liquid [ph], and the Canopres [ph] patch. So, clearly, year-over-year growth in our dispensing rate reflects the enormity of generic launches over that period.
Now, while generic drugs may reduce sales, they typically generate profitability greater than the branded counterparts throughout their life cycle. Even following the implementation of MACs and FULs. And reimbursement for generics generally declines after MACs and FULs are instituted. And as we discussed last quarter, there and FULs and MACs that has been recently instituted on certain important generic drugs, which were launched in prior period and that unfavorably impacted sales and margins when compared sequentially and on a year-over-year basis.