OCR Beats on Earnings Est; Misses Rev

Zacks

Provider of drugs to long-term care facilities and nursing homes, Omnicare Inc. (OCR) posted first quarter 2013 adjusted (excluding one-time expenses) earnings per share of 90 cents surpassing the Zacks Consensus Estimate of 86 cents.

Reported net income, which includes extraordinary and one-time items, in the quarter was $54.4 million (or 51 cents per share), down 2.5% year over year

Revenues

Net sales decreased 4.3% year over year to $1,525 million in the first quarter, trailing the Zacks Consensus Estimate of $1,534 million. Net sales of the Long Term Care Group were $1,155 million in the quarter, down 10.9% year over year. Net sales of the Specialty Care Group were $369 million, up 25.9% year over year.

Margins

Gross margin improved 120 basis points (bps) year over year to 24.3% in the first quarter. Operating margin dropped 10 basis points on a year-over-year basis to 7.7% in the quarter. Adjusted EBITDA from continuing operations stood at $172 million, up 1.2% year over year. 

Adjusted operating income from continuing operations for Long Term Care Group improved marginally 0.6% year over to $155.1 million while the same for Specialty Care Group jumped 26% to $38 million in the quarter.

Balance Sheet, Cash Flow and Other

Omnicare exited the first quarter with cash and cash equivalents of $509.8 million, up 12.2% on a sequential basis. Long-term debt (including notes and convertible debentures) declined 10.4% year sequentially but still remained sizeable at $1,818 million.

Outlook

For 2013, Omnicare reaffirmed its earlier guidance. It continues to anticipate revenues between $6.1 billion and $6.2 billion. The company has maintained its forecast for adjusted earnings per share (from continuing operations) in a range of $3.47 to $3.57. Omnicare maintains its expected cash flows (from continuing operations) in the range of $450 million to $500 million.

Omnicare is a market leading provider of long-term care pharmacy services and health care environment for individuals directly and indirectly, through subsidiaries, across North America. Omnicare has shown significant improvement in margins, attributable to new generics introductions and cost containment efforts. It competes with PharMerica Corporation (PMC) in certain niche segments.

Moreover, generic launches in the next few quarters present a major opportunity due to Omnicare’s direct access to manufacturers and current greater exposure to the institutional pharmacy channel than in the past couple of years. However, the company continues to rely on Medicare and Medicaid programs for a major share of its revenues.

The stock carries a Zacks Rank #2 (Buy). Cyberonics Inc. (CYBX) and Abiomed, Inc. (ABMD) are Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy) stocks, respectively, which are expected to do well.

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