Omnicare Q1 Earnings Beat by a Penny - Analyst Blog

Omnicare Inc. OCR posted adjusted earnings per share of 91 cents in the first quarter of 2014, beating the Zacks Consensus Estimate by a penny and the year-ago level of 84 cents by 8.3%. Reported net earnings in the quarter was $63.8 million (or 59 cents per share), up 17.3% year over year.

Revenues in the quarter went up 7.7% to $1,571.0 million from $1,459.0 million a year ago and were in line with the Zacks Consensus Estimate. Revenue growth was driven by increased script volume from new customer additions in OCR's Long-Term Care Group, rapid growth of the Specialty Care Group and drug price inflation.

Following the earnings release, shares of the company slipped 0.4% to $58.31 till the last trading session.

Segment Results

Revenues from the core Long-Term Care LTC Group were $1,191 million, up 4.3% from $1,142 million in the same period last year. Adjusted operating earnings increased 4.4% to $162.1 million from $155.2 million a year ago. An effective sales structure coupled with an attractive value proposition drove revenue growth during the quarter.

Revenues from the Specialty Care Group SCG jumped 19.9% to $380.0 million from $317.0 million in the comparable prior-year period, driven by a combination of prescription value increases and drug price inflation. Operating earnings of $31.7 million increased 12.8% from $28.1 million reported a year ago.

Margins

Gross profit in the quarter rose 2.5% to $358.5 million on the back of revenue growth. However, gross margin dipped 120 basis points (bps) to 22.8% from 24.0% in the first quarter of 2013 due to a revenue mix shift toward lower margin Specialty Pharmacy business, general pricing adjustments with PDPs and other payers as well as robust inflation of high-cost branded drugs.

Selling, general and administrative (SG&A) expenses declined 2.0% to $186.8 million due to increased efficiencies and other standardization initiatives. As a percentage of sales, SG&A expenses improved 120 bps to 11.9% from 13.1% in the year-ago quarter.

Adjusted depreciation and amortization (D&A) expenses were $27.6 million for the first quarter of 2014, reflecting a 6.6% increase over the comparable prior-year period. OCR expects D&A expenses to increase through 2014, as a result of the recently increased investment in the business.

Adjusted EBITDA increased 10.4% to $177.7 million in the quarter from $160.9 million in the first quarter of 2013.

Financial Position

OCR ended the quarter with cash and cash equivalents of $347.0 million, down 2.5% from $356.0 million as of Dec 31, 2013. Long-term debt (including notes and convertible debentures) declined marginally by 0.1% to $1,417.5 million from $1,418.8 million as of Dec 31, 2013. However, long-term debt to capitalization ratio increased 20 bps to 34.3% from 34.1% as of Dec 31, 2013 due to a fall in shareholder's equity.

In the quarter, cash flow from operations was $171.6 million and capital expenditures were $26.2 million. OCR repurchased 1.6 million shares for an aggregate amount of $95 million. As of Mar 31, 2014, the company had approximately $405 million worth of shares available under its current share repurchase authorization.

2014 Outlook

OCR reaffirmed its previously announced guidance for 2014. Adjusted earnings per share are anticipated in the range of $3.64 to $3.72, reflecting a 6 to 8% increase over 2013. The Zacks Consensus Estimate of $3.70 lies within the guided range.

OCR expects revenues between $6.3 and $6.4 billion for 2014, indicating a 5 to 7% rise over 2013. The Zacks Consensus Estimate of $6.4 billion coincides with the upper end of the guided range.

Operating cash flows are expected between $475 and $550 million for the year, excluding settlement payments.

Our Take

OCR reported an earnings beat and in-line revenues for the first quarter of 2014, with both increasing on year-over-year bases. The company also reiterated its guidance for 2014.

OCR delivered an improved operating performance during the quarter, driven by its ability to convert increased sales to operating earnings as well as its strong working capital management. Furthermore, OCR continues to make additional investments in the business.

OCR continues to face robust inflation of high-cost branded drugs and general pricing adjustments. However, with the rapidly changing healthcare environment, OCR is well-positioned to identify new opportunities and generate consistent growth.

Currently, OCR carries a Zacks Rank #2 (Buy). Some other stocks worth a look in the medical services industry are BioTelemetry, Inc. BEAT, Envision Healthcare Holdings, Inc. EVHC and LipoScience, Inc. LPDX. All the three stocks carry a Zacks Rank #1 (Strong Buy).