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Owens & Minor's (OMI) Shares Fall Despite Q3 Earnings Beat

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Owens & Minor, Inc. OMI reported third-quarter earnings on Nov 2. The quarterly results, however, have failed to impress investors as the stock moved down 14.9% to close at $22.17 on Nov 10.

Owens & Minor reported third-quarter 2020 adjusted earnings per share (EPS) of 81 cents, up 252.2% year over year. The figure beat the Zacks Consensus Estimate by 15.7%.

The company’s GAAP EPS was 76 cents, stupendously up from the year-ago period’s 6 cents.

Revenues in Detail

Revenues in the reported quarter fell 4.6% year over year to $2.19 billion. The metric, however, surpassed the Zacks Consensus Estimate by 5.9%.

Segmental Details

Owens & Minor operates through two segments — Global Solutions and Global Products.

In the third quarter, net revenues at Global Solutions totaled $1.87 billion, down 8.9% year over year. Despite witnessing growth in sales from existing customers in the home healthcare business lines within the segment, the fall in medical distribution business dented segmental revenues. The decline resulted from the impact of customer non-renewals from 2019 and the pandemic-led impacts on elective procedures.

Global Products revenues were $473.8 million during the quarter, up 31.7% year over year. The uptick resulted from robust sales of personal protective equipment (“PPE”) during the quarter, partially offset by the adverse impacts of lower elective procedures.

Margin in Detail

Gross profit rose 22.7% year over year to $344.3 million in the third quarter of 2020. Gross margin expanded 350 bps year over year to 15.7% due to an 8.4% fall in cost of goods sold.

Adjusted operating profit increased 155.9% from the year-ago period to $81.8 million. Adjusted operating margin expanded 234 bps to 3.7% despite a 5.6% rise in adjusted operating expenses.

Owens Minor, Inc. Price, Consensus and EPS Surprise

Owens  Minor, Inc. Price, Consensus and EPS Surprise
Owens Minor, Inc. Price, Consensus and EPS Surprise

Owens Minor, Inc. price-consensus-eps-surprise-chart | Owens Minor, Inc. Quote

Operational Update

Owens & Minor exited the third quarter of 2020 with cash and cash equivalents of $77.3 million compared with $101.3 million at the end of the second quarter. Long-term debt (excluding current portion) at the end of third-quarter 2020 was $1.09 billion compared with $1.27 billion at the end of the second quarter.

Management has approved a fourth-quarter 2020 dividend payment of $0.0025 per share, which is payable on December 31.

Cumulative net cash provided by operating activities at the end of the third quarter was $268.2 million compared with $139.1 million in the year-ago quarter.

Guidance

Owens & Minor expects the adjusted EPS for 2020 to be within the range of $1.90-$2.00, which is above the previously provided range of $1.00-$1.20. The Zacks Consensus Estimate for the full-year adjusted EPS is currently pegged at $1.89.

However, the company expects the elective procedures in the fourth quarter to remain flat compared to the third quarter levels.

Our Take

Owens & Minor ended the third quarter of 2020 with better-than-expected figures. The company witnessed solid revenue growth in its Global Products segment due to strength in PPE sales, which is impressive given the challenging business environment. Expansion of both margins buoy optimism for the stock. An upbeat projection for full-year adjusted EPS growth looks encouraging.

However, a fall in year-over-year top line amid the pandemic-led business challenges is concerning. Also, the company’s expectations of flat elective procedures in the fourth quarter raise apprehensions about the stock.

Zacks Rank & Other Key Picks

Owens & Minor currently flaunts a Zacks Rank #1 (Strong Buy).

A few other top-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Align Technology, Inc. ALGN.

West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher, a Zacks Rank #2 company, reported third-quarter 2020 adjusted EPS of $5.63. The figure beat the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.

Align Technology reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently carries a Zacks Rank #2.

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