Zacks_Analysts' Blog : Omnicare Tops, View Intact - Analyst Blog

Omnicare Inc. (OCR), which sells drugs to long-term care facilities and nursing homes, reported second-quarter fiscal 2011 adjusted (excluding one-time expenses) earnings per share of 50 cents, beating the Zacks Consensus Estimate by a penny.

Reported net income from continuing operations, for the quarter, was $36.3 million (or 32 cents per share) compared with $23.7 million (or 20 cents per share) in the year-ago quarter. The results include the effect of special items, including amortization and litigation, aggregating about $28.1 million on a pre-tax basis compared with $52 million a year ago. 

Revenues

Revenues were $1,555.9 million in the second quarter, up 4.3% year over year, beating the Zacks Consensus Estimate of $1,528 million.

Margins

Gross margin was 21.6% in the second quarter, lower than 21.9% in the year-ago quarter. Operating margin was 6.3% compared with 5.7% in the prior-year quarter. 

Balance Sheet and Cash Flow

Omnicare had cash and cash equivalents of $524 million, as of June 30, 2011, up 32.7% year over year. Long-term debt (including notes and convertible debentures) was sizeable at almost $2 billion, down 7.2% on a year-over-year basis. Total debt-to-capital ratio, as of June 30, 2010, was 34%, down about 160 basis points since December 31, 2010. Cash flow from continuing operations was $137 million in the second quarter, taking the first half total to about $281 million, the highest for the first six-month period in the company’s history.   

Outlook

Omnicare reiterated its revenue and earnings 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 now expects operating cash flows (from continuing operations) in the range of $400 million to $450 million (earlier $375 million to $425 million) for 2011.

Omnicare is a market leader in providing pharmaceutical care for the elderly. The industry 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.