Omnicell Drops Despite Q1 Earnings & Revs Beat - Analyst Blog

Omnicell, Inc. OMCL reported first-quarter 2014 adjusted earnings per share EPS of 19 cents (considering stock-based compensation as a regular expense), up 46% from the year-ago adjusted figure of 13 cents. The adjusted EPS number also remained ahead of the Zacks Consensus Estimate by a penny.

Following the earnings announcement, the company's share price dropped 1.43% to $26.59 after the market closed on May 6.

On a reported basis, Omnicell's net income was $6.2 million (or 17 cents per share), higher than $3.4 million (or 10 cents per share) recorded in the year-ago quarter.

Revenues in Detail

Revenues in the quarter grew 16.8% year over year to $101.8 million, surpassing the Zacks Consensus Estimate of $97 million. The quarter's revenues also went ahead of the company provided guidance range of $96−$98 million. Growth was primarily led by successful implementation of the company's three pronged strategy of differentiated products, expansion into new markets, acquisitions and partnerships which according to Omnicell, finally started to pay off.

During the earnings call, the company noted that, with effect from the first quarter of 2014 it has changed its reporting segments from the customer-centric Acute Care and Non-Acute Care segments to two product segments, namely Automation and Analytics and Medication Adherence.

While the first one will include OmniRX, Anesthesia Workstations, Central Pharmacy, OmniSupply, and Pandora Analytics products, the Medication Adherence Solutions segment will include MTS blister card packaging products and related consumables.

During the quarter, the Automation and Analytics segment contributed $81.5 million in revenues compared with $68.7 million in the year-ago quarter. The Medication Adherence segment reported revenues of $20.3 million, up from $18.4 million a year ago.

The quarter experienced strong demand for G4 upgrading to existing automated sensing system installation. Over 1000 customers have ordered G4 since it was launched in 2011 and among the existing ones on the older G3 technology, 41% have now upgraded to G4.

Operational Update

Omnicell's total cost of revenues was up 13.2% year over year to $47.3 million. Gross profit improved 20.1% to $54.5 million. However, gross margin contracted about 147 basis points (bps) to 53.6% in the quarter.

Omnicell's research and development expenses climbed 15.6% to $38.4 million while selling, general and administrative expenses declined 23.0% to $6.1 million. Accordingly, operating margin expanded a huge 500 bps to 9.8% in the quarter.

Financial Update

Omnicell exited the first quarter with cash and cash equivalents of $107.5 million compared with $104.5 million at the end of 2013.

Outlook

Omnicell reiterated its full year 2014 revenues in the range of $415–$425 million (estimated growth of 9–12%). The current Zacks Consensus Estimate of $423 million lies close to the upper end of the range. Full year adjusted EPS forecast remains in the band of $1.17–$1.23 (unchanged). However, the Zacks Consensus Estimate is pegged at 99 cents, much lower than the company's guidance.

At the end of 2014, Omnicell expects product bookings of $340–$350 million (unchanged).

Our Take

Omnicell reported a decent first-quarter 2014 with both the top and bottom line beating the respective Zacks Consensus Estimate. Reported revenues also exceeded the company's guidance range for the quarter. Declining selling, general and administrative expenses drove the operating margin to a significant high. However, we note that constrained hospital spending might hamper Omnicell's market penetration in the U.S. going forward. A tough competitive landscape also remains an overhang.

Nevertheless, the company's venture into the highly profitable and underpenetrated non-acute care market with the MTS acquisition is yielding positive results.

The stock currently carries a Zacks Rank #3 (Hold). Some of the better-ranked stocks in the broader medical sector are Accuray Incorporated ARAY, Edwards Lifesciences Corp. EW and IDEXX Laboratories, Inc. IDXX, all carrying a Zacks Rank #2 (Buy).