Zacks_Analysts' Blog : BioScrip Beats, Margins Weak - Analyst Blog

Specialty pharmacy services provider, BioScrip Inc. (BIOS) reported EPS of 1 cent in the third quarter of fiscal 2011, down 75% year over year. However, after deducting the impact of restructuring charges, severance and other employee costs, adjusted EPS came in at 10 cents during the quarter, surpassing the Zacks Consensus Estimate of 9 cents.

BioScrip primarily operates through two segments – Infusion and Home Health Services and Pharmacy Services. Total revenue in the quarter stood at $454 million, up 2.9% year over year and above the Zacks Consensus Estimate of $445 million. This was attributable to a 4.6% rise in Pharmacy Services revenue to $344.5 million, partially offset by a 2.1% fall in Infusion/Home Health Services revenue to $109.6 million.

Despite gross profit increasing 2.2% to $77.1 million during the quarter, the company’s gross margin contracted 10 basis points (bps) to 17.0% due to a 3.1% rise in cost of revenues in the quarter. In addition, higher selling, general and administrative expenses (up 8.6% year over year to $60.7 million) led to an 80 bps contraction in adjusted operating margin (excluding the impact of certain one-time expenses) to 3.6% during the quarter.

BioScrip’s operating cash flow of $39.5 million in the third quarter of 2011 compared favorably with $5.9 in the prior-year quarter. Further, at the end of September 2011, the company’s total borrowings under revolving credit facility declined to $49.9 million compared with $81.2 million at the end of December 2010.

The company faces significant competition in the pharmaceutical healthcare services industry from the likes of CVS Caremark (CVS) and Express Script (ESRX) as well as from smaller organizations that operate on a local or regional basis.

However, the company has adopted a new strategic assessment policy for its business in order to improve its present position. Also, the success of the CHS business is expected to improve BioScrip’s competitive position by boosting its Infusion and Home Health Services going forward.  Presently, BioScrip retains a short-term Zacks#2 Rank (Buy). However, over the longer term, we remain ‘Neutral’ on the stock.