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Omnicare, Inc. (OCR)
Q2 FY08 Earnings Call
July 31, 2008, 11:00 AM ET
Cheryl Hodges - Sr. VP, IR
Joel Gemunder - President, CEO, Director
David Froesel - CFO, Sr. VP
Lisa Gill - JPMorgan
Jason Gurda - Leerink Swann
Adam Feinstein - Lehman Brothers
Charles Rhyee - Oppenheimer & Co.
Frank Morgan - Jefferies & Company
Previous Statements by OCR
» Omnicare, Inc. Q3 2009 Earnings Call Transcript
» Omnicare, Inc., Q4 2008 Earnings Call Transcript
» Omnicare Inc. Q3 2008 Earnings Conference Call Transcript
Ms. Cheryl Hodges, you may begin your conference.
Cheryl D. Hodges - Senior Vice President, Investor Relations
Thank you, Regina.
Good morning, everyone, and welcome to Omnicare second quarter 2008 earnings conference call. Here today from Omnicare are Joel Gemunder, President and CEO; Dave Froesel, Senior Vice President and Chief Financial Officer; 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 statement reflects 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's sake and to focus on what we believe are the best indicators of our operating performance, we will discuss the 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 second quarter of 2008.
I must say that we're pleased once again to open our call by noting that our adjusted earnings for the quarter to beat expectations, both the Street consensus as well as our own expectations by $0.07 per share. And these results are particularly gratifying, given the dynamic operating environment we faced over the past two and a half years. The strategic and operational initiatives we put into place over that time as well as our focus on driving the business forward, we believe are gaining traction.
This quarter's result at $0.46 per diluted share as adjusted with special items are also encouraging as they follow on our first quarter at $0.40 adjusted, which had the benefit of a strong flu season that was not present in the second quarter. We are also pleased to announce the completion of our $100 million stock buyback. We were able to repurchase about 4 million shares at an average price of $24.22 over a 16-day period in May. And given the timing, that helped... only helped diluted earnings per share by roughly $0.005 in the quarter, but will see the full impact beginning in the third quarter.
On looking further at the quarter's results, we're going to focus our remarks today largely on comparison between the second quarter of 2008 and the first quarter of 2008, because we believe the sequential results provides the most meaningful gauge of our recent performance. We recorded sales for the quarter at just over $1.55 billion, which also came in ahead of expectations. While sales were lower sequentially by about $9 million, less than 1%, owing largely to the increased penetration of generics, lower acuity and utilization related to the drop off of the flu season and modestly lower net debt [ph]. Much of this was offset by continuing strong drug price inflations, increased use of higher acuity drugs and biologic agents and growth in our CRO specialty pharmacy and hospice pharmacy business.
We're also pleased to see our gross margins moving in positive direction for the first time in the past four quarters. At 24.8% for the second quarter, our gross margins were 30 basis points ahead of last quarter, reflecting in part the benefit of generics. Our operating margins widened by approximately 50 basis points sequentially to 7.8%, reflecting the higher gross margin along with a relatively stable SG&A and lower bad debt expense.
And as Dave will tell you in a moment, our cash flow performance was again strong and ahead of expectations. As you saw in our press release, we served 1,438,000 beds at the end of June, including 70,000 patients and patients assistance programs. And when we break this down a bit, we see some encouraging trends.
Obviously, the specialty pharmacy patients grew by a 1,000 sequentially, and then looking at the institutional pharmacy side net bed served were down 9,000 sequentially, which on its face is a 40% improvement over the March quarter. But, of these 9,000 beds, a total of 7,900 beds were voluntarily foregone for pricing and payment terms or represent facilities sold or closed. So, had we not given up these beds or lost them due to fact outside of our control, we would have been about 1,000 away from breakeven. So clearly we're making progress on our initiatives to restore net bed growth.
Our total gross bed losses improved sequentially even with the inclusion of beds voluntarily foregone or facilities closed or sold. In fact, they were at their second lowest level in the last 11 quarters. This positive trend reflects both the effects of our pharmacy operating expense as well as the success of our specialized customer retention savings.