Zacks_Analysts' Blog : Omnicare Beats, Turns to Profit - Analyst Blog

Omnicare Inc. (OCR), which sells drugs to long-term care facilities and nursing homes, reported third-quarter fiscal 2011 adjusted (excluding one-time expenses) earnings per share of 54 cents, surpassing the Zacks Consensus Estimate by a penny.

Reported net income from continuing operations, for the quarter, was $37.8 million (or 33 cents per share) compared with a loss of $9.6 million (or 8 cents per share) in the year-ago quarter. The results include the effect of special items, including amortization and litigation, amounting to about $39.7 million on a pre-tax basis compared with $111.5 million a year ago. 

Revenues

Sales were $1,544.4 million in the third quarter, up 1.9% year over year, sailing past the Zacks Consensus Estimate of $1,531 million.

Margins

Gross margin stood at 22.4% in the third quarter, higher than 22% in the year-ago quarter. Operating margin was 7.6%, up sharply from 0.71% in the prior-year quarter. 

Balance Sheet and Cash Flow

Omnicare had cash and cash equivalents of $681.6 million, as of September 30, 2011, up 94.1% year over year. Long-term debt (including notes and convertible debentures) was large at approximately $2.1 billion, down 4.1% on a year-over-year basis. Total debt-to-capital ratio, as of September 30, 2010, was 36.2%, up about 60 basis points since December 31, 2010. Cash flow from continuing operations was $167 million in the third quarter, taking the nine-month total to about $448 million.   

Outlook

Omnicare continues to anticipate revenues, for fiscal 2011, between $6 billion and $6.1 billion. It now expects adjusted earnings per share in a range of $2.09 to $2.13 (earlier $2.05 to $2.15). The company now expects operating cash flows (from continuing operations) in the range of $500 million to $525 million (earlier $400 million to $450 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 cut down costs and increased efficiency through its Full Potential Plan. However, the beneficial effects are partly offset by pressure from reimbursement cuts. Over the long 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 major profitability opportunity due to Omnicare’s greater exposure to the institutional pharmacy channel than in past years.