Owens & Minor, Inc. (NYSE:OMI) today reported financial
results for the second quarter ended June 30, 2014, including the
following items:
- Consolidated quarterly revenue was
$2.31 billion, an increase of 3.1%
- Adjusted net income per diluted share
was $0.40 for the quarter
- Owens & Minor announced plans to
acquire Medical Action Industries Inc. during 2Q 2014
For the quarter ended June 30, 2014, the company reported
consolidated quarterly revenues of $2.31 billion, an increase of
3.1% over the second quarter of 2013. Quarterly net income was
$19.9 million, or $0.32 per diluted share. Adjusted net income
(non-GAAP), excluding after-tax charges of $2.5 million for
acquisition-related and $2.6 million for exit and realignment
activities, was $25.0 million, or $0.40 per diluted share.
Consolidated operating earnings for the second quarter of 2014
were $37.1 million, a decline of $12.9 million, when compared to
the second quarter last year. Adjusted consolidated operating
earnings (non-GAAP) for the second quarter of 2014 were $44.7
million, or 1.94% of revenues, a decline of $6.0 million when
compared to the year before.
“While second quarter results were impacted by many of the same
trends that we saw earlier in the year, we are confident that the
deliberate actions we are taking to on-board new customers and
realign our platforms and teams in the U.S. and Europe will drive
performance in the second half of 2014,” said Craig R. Smith,
chairman & chief executive officer of Owens & Minor. “In
the U.S., we continued to see growth among our larger healthcare
provider customer accounts. In Europe, we continue to work on
optimizing the network and improving operations, especially in the
U.K. On the Domestic side, we are looking forward to completing the
Medical Action Industries acquisition, which will enable us to
expand service offerings to our healthcare provider and
manufacturer customers. We believe Owens & Minor remains well
positioned to create sustainable value for our shareholders.”
Acquisition Update
During the second quarter, Owens & Minor announced plans to
acquire Medical Action Industries Inc. (Medical Action)
(Nasdaq:MDCI), a leading producer of surgical kits and procedure
trays. The acquisition will enable an expansion of Owens &
Minor’s capabilities in the global sourcing and production of kits,
packs and trays for the healthcare market. Under terms of the
definitive agreement, Owens & Minor will acquire all
outstanding shares of Medical Action Industries Inc. for $13.80 per
share in cash, representing a total transaction value of
approximately $208 million, including assumed debt, net of cash.
Medical Action reported $288 million in net sales from continuing
operations for the fiscal year ended March 31, 2014, of which
approximately 45% represented sales to Owens & Minor. The
transaction, which is expected to close in the fourth quarter of
2014, is subject to customary closing conditions, including Medical
Action shareholder approval. Owens & Minor has been notified
that the Federal Trade Commission has granted early termination of
the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (HSR) in connection with the proposed
acquisition. Owens & Minor intends to finance the transaction
with existing cash and available borrowings under its revolving
credit facility.
The acquisition of Medical Action is expected to be accretive to
Owens & Minor’s adjusted net income (non-GAAP) in 2015,
including anticipated partial synergies in the first full year of
ownership. Owens & Minor estimates annual pre-tax cost
synergies of $10 to $12 million by the end of calendar year 2016,
excluding potential revenue synergies. Aside from
transaction-related costs, which will be reported as
acquisition-related and exit and realignment charges, the impact to
Owens & Minor ’s 2014 adjusted net income per diluted share
will be limited primarily to the fourth quarter of 2014, and is not
expected to be significant.
“This strategic acquisition, a highly complementary business,
opens up a new growth area for our company by allowing us to
produce custom procedure trays and minor procedure kits for our
provider and manufacturer customers,” said James L. Bierman,
president & chief operating officer of Owens & Minor. “It
is a natural expansion of our strategy to provide customers more
complete and cost-effective solutions globally. Combined with the
steps we are taking to reduce costs and increase efficiencies, the
continued focus on core capabilities with customer-driven solutions
that will allow us to remain at the forefront of connecting the
world of medical products to the point-of-care.”
2014 Year-to-Date
Results
For the six months ended June 30, 2014, consolidated revenues
were $4.56 billion, increased approximately $79.8 million, or 1.8%,
when compared to the first six months of 2013. Net income for the
first half of 2014 was $45.4 million, or $0.72 per diluted share.
For the year-to-date period, adjusted net income (non-GAAP), which
excludes after-tax charges of $3.0 million for acquisition-related
and $4.3 million for exit and realignment activities, was $52.7
million, or $0.84 per diluted share. Year-to-date results include
the first-quarter recovery of $5.3 million, resulting from the
settlement of a direct purchaser anti-trust class action lawsuit,
which was included in other operating income.
Consolidated operating earnings for the year-to-date period of
2014 were $83.4 million, or 1.83% of revenues, compared to
operating earnings of $97.9 million for the same period of 2013.
Adjusted consolidated operating earnings for the year-to-date
period were $94.2 million, or 2.07% of revenues, a decline of 17
basis points versus the first six months of 2013.
Asset Management
The balance of cash and cash equivalents was $92 million at June
30, 2014. For the year-to-date period of 2014, the company reported
cash provided by operating activities of approximately $73 million.
Asset management metrics for the quarter were strong with
consolidated days sales outstanding (DSO) of 20.6 days as of June
30, 2014, compared to DSO of 20.8 days as of June 30, 2013.
Consolidated inventory turns were 10.2 for the second quarter of
2014, comparable to inventory turns for the same period last
year.
Segment Results
Domestic segment revenues for the second quarter of 2014 were
$2.19 billion, an increase of 2% when compared to the prior year’s
second quarter revenue of $2.14 billion. The increase in second
quarter Domestic segment revenues resulted primarily from growth
among larger healthcare provider customer accounts, partially
offset by declines in revenue from smaller provider customers. For
the year-to-date period, Domestic segment revenues were $4.34
billion, an increase of approximately 1% when compared to the same
period last year.
For the second quarter of 2014, Domestic segment operating
earnings were $48.3 million, or 2.21% of segment revenues, a
decline of approximately $2.9 million, when compared to the same
period of 2013. For the year-to-date period, Domestic segment
operating earnings were $101.1 million, or 2.33% of segment
revenues, a decline of $3.1 million, when compared to operating
earnings for the same period in the prior year. For both the
quarter and the year-to-date periods, the decline in Domestic
segment operating earnings reflected lower benefits from supplier
price changes, as well as lower margin on new and renewed customer
contracts. Offsetting these negative factors were cost benefits
realized from ongoing strategic initiatives designed to improve
productivity and efficiency.
The International segment contributed revenue of $118 million
for the second quarter of 2014 and had an operating loss of $3.6
million. For the year-to-date period, the International segment
reported $226 million in revenues, and an operating loss of $6.8
million. For both the quarter and the year-to-date periods, the
company attributed the International segment operating losses to
operations in the United Kingdom, including increased costs
associated with integrating a significant new customer and reduced
customer activity.
2014 Outlook
Based on operating and financial results for the first half of
2014 and expectations for the remainder of the year, the company
revised its financial guidance for the year as follows:
For 2014, the company now expects revenue growth to exceed 2%
and adjusted net income per diluted share to be within a range of
$1.80 to $1.90 for the year, excluding acquisition-related and exit
and realignment activities.
The 2014 outlook is based on certain assumptions that are
subject to the risk factors discussed in the company’s filings with
the Securities & Exchange Commission.
Investor Events
Owens & Minor is scheduled to participate in investor
conferences in second half of 2014; webcasts of the company’s
formal presentations will be posted on the company’s corporate
website:
- R.W. Baird 2014 Healthcare Conference,
New York – September 3, 2014
- 2014 Morgan Stanley Global Healthcare
Conference, New York – September 8-10, 2014
- 2014 Credit Suisse Healthcare
Conference, Phoenix – November 11-13, 2014
Investors Conference Call &
Supplemental Material
Conference Call: Owens & Minor will conduct a conference
call for investors on Tuesday, July 29, 2014, at 8:00 a.m. EDT. The
access code for the conference call, international dial-in and
replay is #70234446. Participants may access the call at
866-393-1604. The international dial-in number is 224-357-2191.
Replay: A replay of the call will be available for one week by
dialing 855-859-2056. Webcast: A listen-only webcast of the call,
along with supplemental information, will be available on
www.owens-minor.com under “Investor Relations.”
Owens & Minor uses its website as a channel of distribution
for material company information, including news releases, investor
presentations and financial information. This information is
routinely posted and accessible under Investor Relations at
www.owens-minor.com.
Included with the press release financial tables are
reconciliations of the differences between the non-GAAP financial
measures presented in this news release, which exclude
acquisition-related and exit and realignment charges, and their
most directly comparable GAAP financial measures.
Safe Harbor Statement
Except for historical information, the matters discussed in this
press release may constitute forward-looking statements that
involve risks and uncertainties that could cause actual results to
differ materially from those projected. These risk factors are
discussed in reports filed by the company with the Securities &
Exchange Commission. All of this information is available at
www.owens-minor.com.
The company assumes no obligation, and expressly disclaims any
such obligation, to update or alter information, whether as a
result of new information, future events, or otherwise.
Owens & Minor, Inc.
(NYSE: OMI) is a leading healthcare logistics company dedicated to
Connecting the World of Medical Products to the Point of CareTM by
providing vital supply chain services to healthcare providers and
manufacturers of healthcare products. Owens & Minor provides
logistics services across the spectrum of medical products from
disposable medical supplies to devices and implants. With logistics
platforms strategically located in the United States and Europe,
Owens & Minor serves markets where three quarters of global
healthcare spending occurs. Owens & Minor’s customers span the
healthcare market from independent hospitals to large integrated
healthcare networks, as well as group purchasing organizations,
healthcare products manufacturers, and the federal government. A
FORTUNE 500 company, Owens & Minor is headquartered in
Richmond, Virginia, and has annualized revenues exceeding $9
billion. For more information about Owens & Minor, visit the
company website at www.owens-minor.com.
Owens & Minor, Inc.
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
Three Months Ended June 30, 2014
2013 Net revenue
$ 2,305,858 $ 2,236,077 Cost
of goods sold
2,023,586 1,962,646 Gross margin
282,272 273,431 Selling, general and administrative expenses
225,838 212,548 Acquisition-related and exit and realignment
charges
7,593 638 Depreciation and amortization
13,892 12,276 Other operating income, net
(2,152
) (2,081 ) Operating earnings
37,101 50,050 Interest
expense, net
3,342 3,248 Income before income
taxes
33,759 46,802 Income tax provision
13,883
17,930
Net income $ 19,876
$ 28,872
Net income per common share:
Basic $ 0.32 $ 0.46
Diluted $
0.32 $ 0.46
Six Months Ended June 30,
2014 2013 Net revenue
$
4,562,239 $ 4,482,461 Cost of goods sold
3,998,771
3,929,979 Gross margin
563,468 552,482
Selling, general and administrative expenses
451,448 430,269
Acquisition-related and exit and realignment charges
10,855
2,648 Depreciation and amortization
27,756 24,905 Other
operating income, net
(9,978 ) (3,274 ) Operating
earnings
83,387 97,934 Interest expense, net
6,589
6,446 Income before income taxes
76,798 91,488
Income tax provision
31,436 36,518
Net
income $ 45,362 $ 54,970
Net income per common share: Basic $
0.72 $ 0.87
Diluted $ 0.72 $ 0.87
Owens & Minor, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands)
June 30, 2014 December 31, 2013
Assets Current assets Cash and cash
equivalents
$ 92,027 $ 101,905 Accounts and notes
receivable, net
545,179 572,854 Merchandise inventories
820,882 771,663 Other current assets
287,844
279,510
Total current assets 1,745,932
1,725,932 Property and equipment, net
207,140 191,961
Goodwill, net
275,975 275,439 Intangible assets, net
38,679 40,406 Other assets, net
96,085
90,304
Total assets $ 2,363,811
$ 2,324,042
Liabilities and equity Current
liabilities Accounts payable
$ 698,648 $ 643,872
Accrued payroll and related liabilities
29,691 23,296
Deferred income taxes
38,951 41,613 Other current
liabilities
251,015 280,398
Total
current liabilities 1,018,305 989,179 Long-term debt,
excluding current portion
219,098 213,815 Deferred income
taxes
42,080 43,727 Other liabilities
52,943
52,278
Total liabilities 1,332,426
1,298,999
Total equity 1,031,385
1,025,043
Total liabilities and equity $
2,363,811 $ 2,324,042
Owens & Minor, Inc.
Consolidated Statements of Cash
Flows (unaudited)
(in thousands)
Six Months Ended June 30, 2014
2013 Operating activities: Net income
$ 45,362 $ 54,970 Adjustments to reconcile net income
to cash provided by operating activities: Depreciation and
amortization
27,756 24,905 Share-based compensation expense
4,190 3,449 Provision for losses on accounts and notes
receivable
334 315 Deferred income tax (benefit) expense
(5,151 ) 5,777 Changes in operating assets and
liabilities: Accounts and notes receivable
28,477 1,789
Merchandise inventories
(48,575 ) (31,176 ) Accounts
payable
54,922 191,406 Net change in other assets and
liabilities
(32,765 ) (69,462 ) Other, net
(1,078 ) (2,794 )
Cash provided by
operating activities 73,472 179,179
Investing activities: Additions to property
and equipment
(25,657 ) (16,221 ) Additions to
computer software and intangible assets
(13,166 )
(14,826 ) Proceeds from sale of investment
1,937 — Proceeds
from sale of property and equipment
45
68
Cash used for investing activities
(36,841 ) (30,979 )
Financing
activities: Cash dividends paid
(31,564 ) (30,411
) Repurchases of common stock
(9,448 ) (8,297 )
Excess tax benefits related to share-based compensation
444
550 Proceeds from exercise of stock options
1,180 4,195
Purchase of noncontrolling interest
(1,500 ) — Other,
net
(4,441 ) (5,167 )
Cash used for
financing activities (45,329 )
(39,130 )
Effect of exchange rate changes on cash and cash
equivalents (1,180 ) 868
Net increase (decrease) in cash and cash equivalents
(9,878 ) 109,938
Cash and cash equivalents at
beginning of period 101,905 97,888
Cash and cash equivalents at end of period
$ 92,027 $ 207,826
Owens & Minor, Inc.
Financial Statistics and GAAP/Non-GAAP
Reconciliations (unaudited)
(in thousands, except per share data)
Quarter Ended (in thousands, except
ratios and per share data)
6/30/2014 3/31/2014
12/31/2013 9/30/2013 6/30/2013
Consolidated operating results: Domestic
$ 2,187,535 $ 2,148,915 $ 2,213,949 $ 2,175,663 $
2,143,691 International
118,323 107,465
104,575 94,884 92,386
Net revenue
$ 2,305,858 $
2,256,380 $ 2,318,524 $ 2,270,547
$ 2,236,077 Gross margin
$
282,272 $ 281,195 $ 291,263 $ 273,329 $ 273,431 Gross margin
as a percent of revenue
12.24 % 12.46 %
12.56 % 12.04 % 12.23 % SG&A
expenses
$ 225,838 $ 225,610 $ 222,043 $ 211,344 $
212,548 SG&A expenses as a percent of revenue
9.79 % 10.00 % 9.58 % 9.31 %
9.51 % Operating earnings, as reported (GAAP)
$ 37,101 $ 46,284 $ 50,934 $ 49,215 $ 50,050
Acquisition-related and exit and realignment charges
7,593 3,262 7,049
2,747 638 Operating earnings, adjusted
(Non-GAAP)
$ 44,694 $ 49,546 $ 57,983 $ 51,962 $
50,688 Operating earnings as a percent of revenue, adjusted
(Non-GAAP)
1.94 % 2.20 % 2.50 %
2.29 % 2.27 % Net income, as reported (GAAP)
$ 19,876 $ 25,485 $ 27,942 $ 27,970 $ 28,872
Acquisition-related and exit and realignment charges, after-tax
5,095 2,222 5,024
1,899 412 Net income, adjusted (Non-GAAP)
$ 24,971 $ 27,707
$ 32,966 $ 29,869 $ 29,284
Net income per diluted common share, as reported (GAAP)
$ 0.32 $ 0.41 $ 0.44 $ 0.44 $ 0.46
Acquisition-related and exit and realignment charges
0.08 0.03 0.08
0.03 — Net income per diluted common
share, adjusted (Non-GAAP)
$ 0.40
$ 0.44 $ 0.52 $ 0.47
$ 0.46
Financing: Cash and cash
equivalents
$ 92,027 $ 182,373 $ 101,905 $ 153,789 $
207,826 Total interest-bearing debt
$ 221,496
$ 217,261 $ 216,243 $
216,850 $ 216,994
Stock
information: Cash dividends per common share
$
0.25 $ 0.25 $ 0.24
$ 0.24 $ 0.24 Stock price at quarter-end
$ 33.98 $ 35.03 $
36.56 $ 34.59 $ 33.83
Use of Non-GAAP
Measures
This earnings release contains financial measures that are not
calculated in accordance with U.S. generally accepted accounting
principles ("GAAP"). In general, the measures exclude items and
charges that (i) management does not believe reflect Owens &
Minor, Inc.'s (the "Company") core business and relate more to
strategic, multi-year corporate activities; or (ii) relate to
activities or actions that may have occurred over multiple or in
prior periods without predictable trends. Management uses these
non-GAAP financial measures internally to evaluate the Company's
performance, evaluate the balance sheet, engage in financial and
operational planning and determine incentive compensation.
Management provides these non-GAAP financial measures to
investors as supplemental metrics to assist readers in assessing
the effects of items and events on its financial and operating
results and in comparing the Company's performance to that of its
competitors. However, the non-GAAP financial measures used by the
Company may be calculated differently from, and therefore may not
be comparable to, similarly titled measures used by other
companies.
The non-GAAP financial measures disclosed by the Company should
not be considered a substitute for, or superior to, financial
measures calculated in accordance with GAAP, and the financial
results calculated in accordance with GAAP and reconciliations to
those financial statements set forth above should be carefully
evaluated.
Owens & Minor, Inc.
Summary Segment Information
(unaudited)
(in thousands)
Three Months Ended June 30, 2014 2013
% of % of consolidated consolidated
Amount net
revenue Amount net revenue
Net revenue: Domestic
$
2,187,535 94.87 % $ 2,143,691 95.87 %
International
118,323 5.13 % 92,386
4.13 % Consolidated net revenue
$ 2,305,858
100.00 % $ 2,236,077 100.00 %
% of segment % of segment
Operating earnings (loss):
net revenue net revenue Domestic
$ 48,317 2.21
% $ 51,245 2.39 % International
(3,623 )
(3.06
)%
(557 ) (0.60 )% Acquisition-related and exit and realignment
charges
(7,593 ) N/A (638 ) N/A Consolidated
operating earnings
$ 37,101 1.61
% $ 50,050 2.24 %
Depreciation and
amortization: Domestic
$ 8,812 $ 8,887
International
5,080 3,389 Consolidated
depreciation and amortization
$ 13,892 $
12,276
Capital expenditures: (1)
Domestic
$ 18,858 $ 12,872 International
5,737
3,398 Consolidated capital expenditures
$
24,595 $ 16,270 (1) Represents
additions to property and equipment and additions to computer
software and separately acquired intangible assets.
Owens & Minor, Inc.
Summary Segment Information
(unaudited)
(in thousands)
Six Months Ended June 30, 2014 2013
% of % of consolidated consolidated
Amount net
revenue Amount net revenue
Net revenue: Domestic
$
4,336,451 95.05 % $ 4,298,406 95.89 %
International
225,788 4.95 % 184,055
4.11 % Consolidated net revenue
$ 4,562,239
100.00 % $ 4,482,461 100.00 %
% of segment % of segment
Operating earnings (loss):
net revenue net revenue Domestic
$ 101,053
2.33 % $ 104,151 2.42 % International
(6,811
) (3.02
)%
(3,569 ) (1.94 )% Acquisition-related and exit and realignment
charges
(10,855 ) N/A (2,648 ) N/A
Consolidated operating earnings
$ 83,387
1.83 % $ 97,934 2.18 %
Depreciation and amortization: Domestic
$
17,787 $ 17,969 International
9,969 6,936
Consolidated depreciation and amortization
$
27,756 $ 24,905
Capital
expenditures: (1) Domestic
$ 29,033 $ 24,474
International
9,790 6,573 Consolidated capital
expenditures
$ 38,823 $ 31,047
June 30, 2014 December 31, 2013
Total assets:
Domestic
$ 1,787,026 $ 1,747,572 International
484,758 474,565 Segment assets
2,271,784 2,222,137 Cash and cash equivalents
92,027
101,905 Consolidated total assets
$
2,363,811 $ 2,324,042
Owens & Minor, Inc.
Net Income Per Common Share
(unaudited)
(in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June
30, 2014 2013 2014
2013 Numerator: Net income
$ 19,876 $ 28,872
$ 45,362 $ 54,970 Less: income allocated to unvested
restricted shares
(159 ) (156 )
(345 )
(351 ) Net income attributable to common shareholders - basic
19,717 28,716
45,017 54,619 Add: undistributed income
attributable to unvested restricted shares -basic
19 64
68 122 Less: undistributed income attributable to unvested
restricted shares -diluted
(19 ) (64 )
(68
) (122 )
Net income attributable to common shareholders -
diluted $ 19,717 $ 28,716
$
45,017 $ 54,619 Denominator: Weighted average
shares outstanding — basic
62,311 62,707
62,271
62,695 Dilutive shares - stock options
5 45
9 51
Weighted average shares outstanding —
diluted 62,316 62,752
62,280
62,746 Net income per share attributable to
common shareholders: Basic
$ 0.32 $ 0.46
$
0.72 $ 0.87 Diluted
$ 0.32 $ 0.46
$
0.72 $ 0.87
Owens & Minor, Inc.Trudi Allcott, Director, Investor &
Media Relations, 804-723-7555truitt.allcott@owens-minor.comorChuck
Graves, Director, Finance & Investor Relations,
804-723-7556chuck.graves@owens-minor.com
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