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Omnicell, Inc. (OMCL - Analyst Report) reported fourth-quarter 2013 adjusted earnings per share (EPS) of 21 cents (considering stock-based compensation as a regular expense), up 16.7% from the year-ago adjusted figure of 18 cents. However, the adjusted EPS fell short of the Zacks Consensus Estimate by a penny.

Following the earnings announcement, the company’s share price dropped 0.29% to $27.12 after the market closed on Feb 7.

For full-year 2013, Omnicell reported adjusted EPS of 77 cents, up 28.3% from the year-ago equivalent of 60 cents.

On a reported basis, Omnicell’s net income was $6.8 million (or 19 cents per share), higher than $5.5 million (or 16 cents per share) in the year-ago quarter. For 2013, net income was $23.9 million (or 67 cents per share), up 47.5% from the net income of 16.2 million (or 47 cents per share) in 2012.

Revenues in Detail

Revenues in the quarter grew 17.3% year over year to $105.8 million, beating the Zacks Consensus Estimate of $101 million. Growth was led by strong demand from G4 upgrades to existing automated sensing system installation. As per management, revenue improvement can also be attributed to strong sales contribution from the Sidra medical center in Qatar. This was the order which the company took up in late 2012. For the full year, the company recorded revenues of $380.6 million, up 21.2% from the previous year. The reported figure also surpassed the Zacks Consensus Estimate of $376 million.

The company received record orders in the quarter, of which 47% (for automated dispensing systems) came from new and competitive conversion customers.

Product revenues, contributing 82.1% of total revenue, rose 20% to $86.9 million, while Services and Others (accounting for the rest) witnessed an upside of 6.2% to $18.9 million. Segment-wise, Acute Care business recorded revenues of $79.9 million while Non-Acute Care segment revenues came in at $25.8 million.

Operational Update

Omnicell’s cost of product sales were up 25.6% year over year to $41.2 million while cost of services and other revenues decreased 0.3% to $7.94 million. Gross profit improved 14.6% to $56.6 million. However, gross margin contracted about 130 basis points (bps) to 53.5% in the quarter.

Omnicell’s research and development expenses climbed 19.4% to $7.4 million while selling, general and administrative expenses rose 14.1% to $38.1 million. Accordingly, operating margin contracted 40 bps to 10.5% in the quarter.

Financial Update

Omnicell exited the fiscal with cash and cash equivalents of $104.5 million compared with $62.3 million at the end of 2012.

Outlook

Omnicell provided its business outlook for the first quarter and full year 2014. For the first quarter, the company expects revenues of $96−$98 million. The current Zacks Consensus Estimate of $97 million is at the mid-point of the guidance range. The company expects its adjusted EPS to be approximately 23 cents. The Zacks Consensus Estimate of 17 cents falls below the company’s estimate.

The company expects revenues for the full year in the range of $415–$425 million (estimated growth of 9–12%). The current Zacks Consensus Estimate of $422 million lies near the upper end of the range. The full year adjusted EPS forecast lies in the band of $1.17–$1.23. The Zacks Consensus Estimate is pegged at 95 cents, far below the company’s guidance.

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

Our Take

Omnicell reported a mixed fourth-quarter 2014 with the top line beating the Zacks Consensus Estimate but earnings failing to meet the same. Rising operating costs during the quarter significantly put pressure on margins. We note that constrained hospital spending might hamper Omnicell’s market penetration in the U.S. Tough competitive landscape also remains an overhang.

However, Omnicell serves a niche industry and stands to gain from its three-pronged strategy of providing differentiated products, selective acquisitions and targeted international expansion. 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 #2 (Buy). On the other hand, medical sector stocks that warrant a look include Align Technology Inc. (ALGN - Analyst Report), Cardinal Health, Inc. (CAH - Analyst Report) and AngioDynamics Inc. (ANGO - Analyst Report).  All of these carry a Zacks Rank #2.      

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