Zacks_Analysts' Blog : Omnicare Beats, Maintains Guidance - Analyst Blog

Omnicare Inc. (OCR), which sells drugs to long-term care facilities and nursing homes, reported first-quarter fiscal 2011 adjusted (excluding one-time expenses) earnings per share of 52 cents, beating the Zacks Consensus Estimate of 50 cents, and lower than the year-ago earnings of 59 cents.

Reported net income from continuing operations, for the quarter, was $50.5 million (or 44 cents per share) compared with $58.1 million (or 49 cents per share) in the year-ago quarter. The results include the effect of special items, including amortization and litigation, aggregating about $14.9 million on a pre-tax basis compared with $19 million a year ago. 

Revenues

Revenues were $1,528.5 million in the first quarter, up 2.3% year over year, beating the Zacks Consensus Estimate of $1,521 million.

Margins

Gross margin was 22.1% in the first quarter, lower than 23% in the year-ago quarter. Operating margin was 7.5% compared with 8.5% in the prior-year quarter. 

Balance Sheet and Cash Flow

Omnicare had cash and cash equivalents of $454.1 million, as of March 31, 2011, up 44.1% year over year. Long-term debt (including notes and convertible debentures) was sizeable at almost $2 billion, flat on a year-over-year basis. Total debt-to-capital ratio, as of March 31, 2010, was 34.3%, down about 130 basis points on a sequential basis. Cash flow from continuing operations was $143.9 million, up 22.3% year over year. 

Divestiture

Omnicare decided to divest its Contract Research Services segment as this unit no longer retains an appropriate strategic fitment within the company’s operations. The results for this segment have been shown as discontinued operations.

On May 2, 2011, Omnicare announced the divestiture of its group purchasing organization, Tidewater Group Purchasing, to Managed Health Care Associates. The terms of the deal were not disclosed. 

Outlook

Omnicare reiterated its guidance for fiscal 2011. The company continues to anticipate revenues, for fiscal 2011, between $6 billion and $6.1 billion. It expects adjusted earnings per share in a range of $2.05 to $2.15. Omnicare 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.