Omnicare shares surge as 1Q results top low expectations
COVINGTON, Ky.—Omnicare Inc., which dispenses drugs to nursing homes and other long-term care facilities, said Thursday its first-quarter profit fell year-over-year due to increased enrollment in Medicare Part D prescription benefit programs, but results widely beat Wall Street expectations.
Net income for the quarter ended March 31 fell to $29.9 milion, or 25 cents per share, from $43 million, or 35 cents per share, a year ago. Excluding charges, the company earned $48 million, or 40 cents per share, in the latest period.
Sales slipped to $1.56 billion from $1.58 billion.
However, results beat the average estimates of analysts surveyed by Thomson Financial, who expected adjusted profit of 35 cents per share on revenue of $1.53 billion.
Shares of Omnicare rose $2.21, or 11 percent, to $23.24 in afternoon trading.
The company said its results continue to be impacted by the April 2006 reduction by UnitedHealth Group Inc. in the reimbursement rates paid by United to Omnicare, as the managed care provider brought its Medicare Part D drug benefits program in house. This shift cut $14.4 million from Omnicare's first-quarter profit.
Goldman Sachs analyst Randall Stanicky said expectations were low, but the results are "certainly a step in the right direction for Omnicare, which has recently been unable to consistently forecast the business."
Lehman Brothers' Adam Feinstein noted that this the first time Omnicare has met or exceeded guidance in over a year, but noted that cashflow declined from prior-year levels and the company continues to suffer from increased customer turnover with a 15,000 sequential decline in beds serviced.
Banc of America Securities analyst Robert Willoughby said that while the better results are heartening, his focus remains on the board's long-term plans for the franchise.
"OCR's market share, attractive EBITDA margin, and cash flow generation should be worth more than the current valuation implies, and we believe a sale of the company remains in the best interest of both management and investors," he wrote in a note to clients.
