Owens & Minor, Inc. (NYSE-OMI) today reported financial
results for the third quarter ended September 30, 2014, including
the following highlights:
- Consolidated revenues increased 5.1% in
the third quarter of 2014
- Adjusted diluted earnings per share
were $0.42 for the third quarter
- Executed a recapitalization plan,
providing funding for strategic investments and improving
liquidity
For the quarter ended September 30, 2014, the company reported
consolidated revenues of $2.39 billion, improved 5.1% over revenues
in the third quarter of 2013. Quarterly net income was $7.2
million, or $0.11 per diluted share. Adjusted net income (non-GAAP)
was $26.5 million, or $0.42 per diluted share, which excluded the
following after-tax charges: $3.6 million for acquisition-related
and $6.7 million for exit and realignment activities, as well as
$9.1 million for the loss on early retirement of debt due to the
company’s balance sheet recapitalization.
“We are very pleased with the strong growth we are seeing in our
top line, which we believe is a result of our strategic approach to
the market, as well as the improving healthcare environment,” said
James L. Bierman, president & chief executive officer of Owens
& Minor. “In the coming months, we will be fully engaged with
the integration of the previously announced Medical Action
acquisition, as well as the pending ArcRoyal acquisition. We are
enthusiastic about the new and broader capabilities that these
transactions will enable us to bring to our customers.”
Consolidated operating earnings for the third quarter of 2014
were $35.4 million, a decline of $13.8 million, when compared to
the third quarter last year. Adjusted consolidated operating
earnings (non-GAAP) for the third quarter of 2014 were $49.3
million, or 2.07% of revenues, a decline of $2.6 million when
compared to the same period last year.
Third quarter 2014 results also included $0.9 million of
additional interest expense from the balance sheet
recapitalization, which reduced adjusted net income by
approximately $0.01 per diluted share. In addition, third quarter
results reflected the impact of International segment exit and
realignment costs on foreign taxes, as well as certain
non-deductible acquisition expenses. These factors increased the
company’s effective tax rate for the quarter to 55.8%, reducing
adjusted net income by approximately $0.01 per diluted share.
Year-to-Date Results
For the nine months ended September 30, 2014, consolidated
revenues were $6.95 billion, increased approximately $195.4
million, or 2.9%, when compared to consolidated revenues for the
same period of 2013. Net income for the period was $52.5 million,
or $0.84 per diluted share. Adjusted net income (non-GAAP) was
$79.2 million, or $1.26 per diluted share, excluding after-tax
charges of: $6.6 million for acquisition-related activities, $11.0
million for exit and realignment activities, and the $9.1 million
loss on early retirement of debt. Year-to-date results include the
first quarter recovery of $5.3 million 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 $118.8 million, or 1.71% of revenues. Adjusted
consolidated operating earnings (non-GAAP) for the year-to-date
period were $143.6 million, or 2.07% of revenues, compared to
$152.5 million, or 2.26% of revenues, for the same period last
year.
The year-to-date tax rate increased to 43.5%, as a result of the
factors that affected the third quarter tax rate.
Acquisitions Update
Effective October 1, 2014, Owens & Minor completed the
acquisition of Medical Action Industries, Inc. and immediately
launched a comprehensive integration plan. During the third quarter
of 2014, Owens & Minor announced plans to acquire privately
held ArcRoyal, a surgical kitting company based in Ireland, and
expects the transaction will close during the fourth quarter of
2014. Together, these two transactions provide Owens & Minor
with capabilities that are highly complementary to its strategic
goals for developing unitized delivery services for the healthcare
industry. Due to the timing of these two transactions, Owens &
Minor does not expect the acquisitions to make a material
contribution to operational results in the fourth quarter of
2014.
Balance Sheet
Recapitalization
During the quarter, Owens & Minor issued $275 million of
3.875% Senior Notes due 2021 and $275 million of 4.375% Senior
Notes due 2024. As part of the recapitalization, the company
accrued a $14.9 million pre-tax loss on the early retirement of its
2016 Senior Notes. Also during the third quarter, Owens & Minor
amended its existing Credit Agreement (dated June 12, 2012),
increasing the borrowing capacity to $450 million and extending the
term to 2019.
In the fourth quarter, proceeds of approximately $446 million
were used to purchase the outstanding shares of Medical Action
Industries on October 1, 2014, and to fund the early retirement of
the company’s 2016 Senior Notes on October 16, 2014.
Asset Management
The balance of cash and cash equivalents was $610 million at
September 30, 2014, reflecting the company’s balance sheet
recapitalization. As noted above, the cash balance was reduced in
the fourth quarter of 2014 by redemption of the 2016 Senior Notes
and completion of the Medical Action Industries transaction. For
the first nine months of 2014, the company reported cash provided
by operating activities of $81 million. Asset management metrics
for the quarter were positive with consolidated days sales
outstanding (DSO) of 21.8 days as of September 30, 2014, and
consolidated inventory turns of 10.0 for the third quarter of
2014.
Segment Results
Domestic segment revenues for the third quarter of 2014 were
$2.26 billion, an increase of $86.4 million, or 4.0%, when compared
to the prior year’s third quarter revenues of $2.18 billion. For
the year-to-date period, Domestic segment revenues were $6.60
billion, improved $124.5 million, or 1.9% when compared to revenues
of $6.47 billion for the same period last year. In both the
quarterly and year-to-date periods, revenue gains resulted
primarily from growth among larger healthcare provider customer
accounts.
For the third quarter of 2014, Domestic segment operating
earnings were $50.8 million, or 2.25% of segment revenues,
essentially unchanged when compared to the same period of 2013. The
quarterly results were negatively affected by increases in legal
expenses. For the year-to-date period, Domestic segment operating
earnings declined $3.5 million to $151.8 million, or 2.30% of
segment revenues, when compared to the prior year period. For the
year-to-date period, the decline resulted from lower benefits from
manufacturer product price changes and increased legal expenses, as
well as lower margin on new and renewed customer contracts. These
negative factors were offset by cost benefits realized from ongoing
strategic initiatives focused on achieving gains in productivity
and efficiency.
The International segment contributed revenues of $124.0
million, improved 30.7%, for the third quarter of 2014 and had an
operating loss of $1.5 million, when compared to the same period
last year. However, on a sequential basis, quarterly operating
losses for the International segment and the U.K. division were
reduced by more than 50%, as a result of significant remediation
efforts. For the year-to-date period, the International segment
reported $349.8 million in revenues, improved 25.4%, along with
year-to-date operating losses of $8.3 million. For the year-to-date
period, the company attributed the International segment operating
losses to operations in the United Kingdom, including a combination
of increased costs associated with integrating a significant new
customer and reduced customer activity.
Highlights & Upcoming
Events
- The Owens & Minor board of
directors declared a fourth quarter 2014 dividend of $0.25 per
diluted share. The dividend is payable on December 31, 2014, to
shareholders of record on December 15, 2014.
- Owens & Minor is scheduled to
participate in the 2014 Credit Suisse Healthcare Conference on
November 12, 2014 in Phoenix. The presentation, which will be
webcast, is scheduled for 11:00 a.m. Mountain Time.
- Owens & Minor has scheduled its
Annual Investor Day for Friday, December 5, 2014, in New York.
Owens & Minor executives will provide an operational and
strategic overview, as well as the company’s financial outlook for
2015. The event will take place at The New York Palace Hotel,
beginning at 8:00 a.m. EST and concluding at approximately 10:30
a.m. EST. A live, listen-only webcast of the briefing will be
available on the company website at www.owens-minor.com under the
Investor Relations Section. Registration is available via:
http://investors.owens-minor.com/registration.cfm
Investors Conference Call &
Supplemental Material
Owens & Minor’s management team will conduct a conference
call to discuss the third quarter financial results on Tuesday,
October 28, at 8:30 a.m. EST. The access code for this event is
#20117288. The dial-in number for the live conference call is
866-393-1604; the international dial-in number is 224-357-2191; a
replay of the call will be available for one week by calling
855-859-2056. A webcast of the event, along with supplemental
financial information, will be available on www.owens-minor.com
under the Investor Relations section.
Owens & Minor uses its website, www.owens-minor.com, 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 the
Investor Relations section.
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, exit and realignment charges, and the loss on
early retirement of debt, 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 owens-minor.com.
Owens & Minor, Inc.
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
Three Months Ended September 30, 2014
2013 Net revenue
$ 2,386,126 $
2,270,547 Cost of goods sold
2,093,643 1,997,218
Gross margin
292,483 273,329 Selling, general and
administrative expenses
231,377 211,344 Acquisition-related
and exit and realignment charges
13,957 2,747 Depreciation
and amortization
13,841 12,441 Other operating income, net
(2,069 ) (2,418 ) Operating earnings
35,377
49,215 Interest expense, net
4,304 3,389 Loss on early
retirement of debt
14,890 — Income before
income taxes
16,183 45,826 Income tax provision
9,028
17,856
Net income $ 7,155
$ 27,970
Net income per common share:
Basic $ 0.11 $ 0.44
Diluted $
0.11 $ 0.44
Nine Months Ended September 30,
2014 2013 Net revenue
$
6,948,365 $ 6,753,008 Cost of goods sold
6,092,413
5,927,196 Gross margin
855,952 825,812
Selling, general and administrative expenses
682,825 641,613
Acquisition-related and exit and realignment charges
24,813
5,395 Depreciation and amortization
41,597 37,347 Other
operating income, net
(12,046 ) (5,693 ) Operating
earnings
118,763 147,150 Interest expense, net
10,893
9,835 Loss on early retirement of debt
14,890 —
Income before income taxes
92,980 137,315 Income tax
provision
40,464 54,374
Net income
$ 52,516 $ 82,941
Net income
per common share: Basic $ 0.84 $ 1.31
Diluted $ 0.84 $ 1.31
Owens & Minor, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands)
September 30, 2014
December 31, 2013
Assets Current assets Cash
and cash equivalents
$ 610,147 $ 101,905 Accounts and
notes receivable, net
590,140 572,854 Merchandise
inventories
834,476 771,663 Other current assets
295,441 279,510
Total current assets
2,330,204 1,725,932 Property and equipment, net
203,955 191,961 Goodwill
274,533 275,439 Intangible
assets, net
36,457 40,406 Other assets, net
98,749 90,304
Total assets
$ 2,943,898 $ 2,324,042
Liabilities
and equity Current liabilities Current portion of
long-term debt
$ 202,401 $ 2,428 Accounts payable
692,616 643,872 Accrued payroll and related liabilities
28,709 23,296 Deferred income taxes
39,406 41,613
Other accrued liabilities
315,581
277,970
Total current liabilities 1,278,713 989,179
Long-term debt, excluding current portion
563,882 213,815
Deferred income taxes
41,725 43,727 Other liabilities
52,054 52,278
Total liabilities
1,936,374 1,298,999
Total equity
1,007,524 1,025,043
Total liabilities and
equity $ 2,943,898 $
2,324,042
Owens & Minor, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended September 30,
2014 2013 Operating
activities: Net income
$ 52,516 $ 82,941
Adjustments to reconcile net income to cash provided by operating
activities: Depreciation and amortization
41,597 37,347 Loss
on early retirement of debt
14,890 — Share-based
compensation expense
6,136 5,162 Provision for losses on
accounts and notes receivable
(356 ) 179 Deferred
income tax (benefit) expense
(7,387 ) 8,424 Changes
in operating assets and liabilities: Accounts and notes receivable
(21,456 ) (20,703 ) Merchandise inventories
(63,883 ) (23,690 ) Accounts payable
54,634
93,950 Net change in other assets and liabilities
3,131
(21,285 ) Other, net
1,322 (1,159 )
Cash provided by operating activities 81,144
161,166
Investing activities:
Additions to property and equipment
(36,169 ) (25,144
) Additions to computer software and intangible assets
(17,988 ) (20,361 ) Proceeds from sale of investment
1,937 — Proceeds from sale of property and equipment
151 2,020
Cash used for investing
activities (52,069 ) (43,485 )
Financing activities: Long-term debt borrowings
547,693 — Cash dividends paid
(47,335 )
(45,587 ) Repurchases of common stock
(9,934 )
(15,701 ) Excess tax benefits related to share-based compensation
514 733 Proceeds from exercise of stock options
1,180
4,821 Purchase of noncontrolling interest
(1,500 ) —
Debt issuance costs
(4,178 ) — Other, net
(5,671 ) (6,769 )
Cash provided by (used
for) financing activities 480,769
(62,503 )
Effect of exchange rate changes on cash and cash
equivalents (1,602 ) 723
Net increase in cash and cash equivalents
508,242 55,901
Cash and cash equivalents at beginning of
period 101,905 97,888
Cash and cash equivalents at end of period $
610,147 $ 153,789
Owens & Minor, Inc.
Financial Statistics and GAAP/Non-GAAP
Reconciliations (unaudited)
Quarter Ended (in
thousands, except ratios and per share data)
9/30/2014 6/30/2014 3/31/2014
12/31/2013 9/30/2013
Consolidated operating results:
Domestic
$ 2,262,081 $ 2,187,535 $ 2,148,915 $
2,213,949 $ 2,175,663 International
124,045
118,323 107,465 104,575
94,884 Net revenue
$ 2,386,126
$ 2,305,858 $ 2,256,380 $
2,318,524 $ 2,270,547 Gross margin
$ 292,483 $ 282,272 $ 281,195 $ 291,263 $ 273,329
Gross margin as a percent of revenue
12.26 %
12.24 % 12.46 % 12.56 % 12.04 %
SG&A expenses
$ 231,377 $ 225,838 $ 225,610 $
222,043 $ 211,344 SG&A expenses as a percent of revenue
9.70 % 9.79 % 10.00 % 9.58 %
9.31 % Operating earnings, as reported (GAAP)
$ 35,377 $ 37,101 $ 46,284 $ 50,934 $ 49,215
Acquisition-related and exit and realignment charges
13,957 7,593 3,262
7,049 2,747 Operating earnings, adjusted
(Non-GAAP)
$ 49,334 $ 44,694 $ 49,546 $ 57,983 $
51,962 Operating earnings as a percent of revenue, adjusted
(Non-GAAP)
2.07 % 1.94 % 2.20 %
2.50 % 2.29 % Net income, as reported (GAAP)
$ 7,155 $ 19,876 $ 25,485 $ 27,942 $ 27,970
Acquisition-related and exit and realignment charges, after-tax
10,297 5,095 2,222 5,024 1,899 Loss on early retirement of
debt, after tax
9,092 —
— — — Net income, adjusted
(Non-GAAP)
$ 26,544 $ 24,971
$ 27,707 $ 32,966 $
29,869 Net income per diluted common share, as
reported (GAAP)
$ 0.11 $ 0.32 $ 0.41 $ 0.44 $ 0.44
Acquisition-related and exit and realignment charges
0.17
0.08 0.03 0.08 0.03 Loss on early retirement of debt
0.14 — —
— — Net income per diluted common share,
adjusted (Non-GAAP)
$ 0.42 $
0.40 $ 0.44 $ 0.52 $ 0.47
Financing: Cash and cash equivalents
$
610,147 $ 92,027 $ 182,373 $ 101,905 $ 153,789 Total
interest-bearing debt
$ 766,283
$ 221,496 $ 217,261 $ 216,243
$ 216,850
Stock information: Cash
dividends per common share
$ 0.25
$ 0.25 $ 0.25 $ 0.24
$ 0.24 Stock price at quarter-end
$
32.74 $ 33.98 $ 35.03
$ 36.56 $ 34.59
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 September 30,
2014 2013 % of %
of consolidated consolidated
Amount net revenue
Amount net revenue
Net revenue: Domestic
$
2,262,081 94.80 % $ 2,175,663 95.82 %
International
124,045 5.20 % 94,884
4.18 % Consolidated net revenue
$ 2,386,126
100.00 % $ 2,270,547 100.00 %
% of segment % of segment
Operating earnings (loss):
net revenue net revenue Domestic
$
50,797 2.25 % $ 51,213 2.35 % International
(1,463 ) (1.18 )% 749 0.79 %
Acquisition-related and exit and realignment charges
(13,957
) N/A (2,747 ) N/A Consolidated operating earnings
$ 35,377 1.48 % $ 49,215
2.17 %
Depreciation and amortization: Domestic
$ 8,986 $ 8,805 International
4,855
3,636 Consolidated depreciation and amortization
$
13,841 $ 12,441
Capital
expenditures: (1) Domestic
$ 11,077 $ 10,032
International
4,257 4,426 Consolidated capital
expenditures
$ 15,334 $ 14,458
(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)
Nine Months Ended September 30,
2014 2013 % of %
of consolidated consolidated
Amount net revenue
Amount net revenue
Net revenue: Domestic
$
6,598,531 94.97 % $ 6,474,069 95.87 %
International
349,834 5.03 % 278,939
4.13 % Consolidated net revenue
$ 6,948,365
100.00 % $ 6,753,008 100.00 %
% of segment % of segment
Operating earnings (loss):
net revenue net revenue Domestic
$
151,849 2.30 % $ 155,364 2.40 % International
(8,273 ) (2.36 )% (2,819 ) (1.01 )%
Acquisition-related and exit and realignment charges
(24,813
) N/A (5,395 ) N/A Consolidated operating earnings
$ 118,763 1.71 % $ 147,150
2.18 %
Depreciation and amortization:
Domestic
$ 26,772 $ 26,775 International
14,825 10,572 Consolidated depreciation and
amortization
$ 41,597 $ 37,347
Capital expenditures: (1) Domestic
$
40,110 $ 34,506 International
14,047 10,999
Consolidated capital expenditures
$ 54,157
$ 45,505
September 30, 2014
December 31, 2013
Total assets: Domestic
$
1,834,169 $ 1,747,572 International
499,582
474,565 Segment assets
2,333,751 2,222,137 Cash and
cash equivalents
610,147 101,905 Consolidated
total assets
$ 2,943,898 $ 2,324,042
Owens & Minor, Inc.
Net Income Per Common Share
(unaudited)
(in thousands, except per share data)
Three Months Ended September 30, Nine
Months Ended September 30, 2014
2013 2014 2013
Numerator: Net income
$ 7,155 $ 27,970
$
52,516 $ 82,941 Less: income allocated to unvested
restricted shares
(150 ) (186 )
(453 )
(541 ) Net income attributable to common shareholders - basic
7,005 27,784
52,063 82,400 Add: undistributed income
attributable to unvested restricted shares –basic
— 59
26 185 Less: undistributed income attributable to unvested
restricted shares –diluted
— (59 )
(26
) (185 )
Net income attributable to common shareholders -
diluted $ 7,005 $ 27,784
$
52,063 $ 82,400 Denominator: Weighted average
shares outstanding — basic
62,175 62,605
62,238
62,678 Dilutive shares - stock options
4 26
7 41
Weighted average shares outstanding —
diluted 62,179 62,631
62,245
62,719 Net income per share attributable to
common shareholders: Basic
$ 0.11 $ 0.44
$
0.84 $ 1.31 Diluted
$ 0.11 $ 0.44
$
0.84 $ 1.31
Owens & Minor, Inc.Trudi Allcott, Director, Investor &
Media Relations, 804-723-7555;truitt.allcott@owens-minor.comorChuck
Graves, Director, Finance & Investor Relations,
804-723-7556;chuck.graves@owens-minor.com
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