Zacks_Analysts' Blog : Omnicare Misses Sales, Incurs Loss - Analyst Blog

Omnicare Inc. (OCR), which sells drugs to long-term care facilities and nursing homes, reported fourth-quarter fiscal 2010 adjusted (excluding one-time expenses) earnings per share of 51 cents, matching the Zacks Consensus Estimate, and lower than the year-ago earnings of 74 cents. For fiscal 2010, the company stated adjusted earnings of $2.10 per share, beating the Zacks Consensus Estimate of $2.08, and way below the prior-year earnings of $2.78.

Reported net loss for the quarter was $65.3 million (or 57 cents per share), down from an income of $79.8 million (or 68 cents per share) in the year-ago quarter.  The results include the effect of special items, including restructuring and litigation aggregating about $171.4 million on a pre-tax basis compared with $17.2 million a year ago. 

Revenues

Revenues were $1,558.4 million in the fourth quarter, down 1.2% year over year, missing the Zacks Consensus Estimate of $1,567 million. Sales were $6,146.2 million in the fiscal year, roughly flat with the previous year, falling short of the Zacks Consensus Estimate of $6,152 million.  

Segment-wise Revenue

The Pharmacy Services segment generated sales of $1,532.7 million in the fourth quarter, up 1.8% year over year. The modest year-over-year growth was largely attributable to the positive impact of branded drug price inflation and buoyancy in the company’s specialty pharmacy business. These factors were partly negated by the effect of lower prescription volumes, reduced utilization for some drugs and a reduction in the number of beds serviced by the company. 

The Contract Research segment had sales of $25.7 million in the fourth quarter, down 25.1%.

Margins

Adjusted operating profit at the Pharmacy Services segment was $141 million, down 12.1% year over year. The drop emanated from lower prescription volumes as well as reimbursement and higher labor costs. These factors were partly countered by additional utilization of higher-margin generic drugs, inflation in drug prices, and productivity enhancement steps.

Adjusted operating loss at the Contract Research segment was $2.3 million, down from a marginal profit of $0.4 million in the year-ago period. Its backlog, as of December 31, 2010, was $159.8 million.

Balance Sheet and Cash Flow

Omnicare had cash and cash equivalents of $496.5 million, as of December 31, 2010, up 70.6% year over year. Long-term debt (including notes and convertible debentures) was sizeable at $2.1 billion, up 6.4%. Total debt-to-capital ratio, as of December 31, 2010, was 35.6%, up from 35.2% on the year-ago date.

Outlook

Omnicare anticipates revenues, for fiscal 2011, around $6 billion to $6.1 billion. The company expects adjusted earnings per share in a range of $2.05 to $2.15. It forecasts operating cash flow (from continuing operations) in the range of $375 million to $425 million for 2011.

Omnicare is a market leader in an industry that is essential to serving the needs of the long-term care population. It competes with PharMerica Corporation (PMC) in certain niche segments.

The company has reduced costs and increased efficiency through its Full Potential Plan. However, the beneficial effects are partly offset by pressure from reimbursement cuts. Longer term, Omnicare will be able to offset some of these reimbursement cuts through better purchasing. Generics coming to market in the next few quarters present a substantial profitability opportunity due to Omnicare’s higher exposure to the institutional pharmacy channel than in past years.