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Provider of automation solutions for the medication-use process, Omnicell Inc. (OMCL - Analyst Report) reported earnings per share (EPS) of 16 cents in the fourth quarter of 2012, significantly up from 12 cents in the year-ago quarter. However, excluding the impact of one-time items associated with the MTS acquisition, the adjusted EPS soared 50% on a year-over-year basis to 18 cents in the quarter, a beat of 12.5% over the Zacks Consensus Estimate.

Adjusted EPS in 2012 came in at 60 cents, up 27.7% from the Zacks Consensus Estimate and 81.8% higher from 2011 adjusted EPS. Omnicell sailed past earlier results (prior-year quarter and 2011 EPS) on the back of top-line growth with its foray into the under-penetrated non-acute care market following the MTS acquisition.

Revenues in the fourth quarter (including the results of MTS Medication Technologies) jumped 43.3% year over year to $90.2 million, a milestone for the company, surpassing the Zacks Consensus Estimate of $87 million. Product revenue, contributing 80.2% of total revenues, soared 53.1% to $72.4 million in the quarter, while Services and Others (contributing the rest) witnessed an upside of 13.4% to $17.8 million.

Full year revenues improved 24.9% from year-ago level to a record high of $314 million in 2012, edging past the Zacks Consensus Estimate of $311 million. As of Dec 31, 2012, product backlog was $155 million, up 16% from Dec 31, 2011.

Cost of product sales surged 67.9% year over year to $32.9 million in the quarter while cost of services and others revenues increased 6.7% to $6.7 million. Consequently, gross margin contracted more than 240 basis points (bps) to 54.7% in the quarter.

Omnicell’s research and development (R&D) expenses increased 3.4% to $6.1 million while selling, general and administrative (SG&A) expenses soared 40.3% to $33.4 million. However, operating margin expanded 100 bps to 10.9% in the fourth quarter.

Omnicell exited 2012 with cash and cash equivalents of $62.3 million, down 67.5% year over year.

Our View

Omnicell reported yet another positive quarter with record high revenues. The consistent performance of the company implies that its three-pronged strategy of domestic expansion, selective acquisitions and targeted international expansion is yielding positive results. While top-line synergies from the MTS acquisition was a major catalyst in 2012, several contract wins in the domestic and offshore market is likely to boost organic growth as well. Further, high profitability of the non-acute care division lends Omnicell another upside edge and should improve margins going forward.

However, constrained hospital spending remains an overhang. Further, competitive pressure and aggressive price competition keeps us on the sidelines. Accordingly, the stock carries a Zacks Rank #3 (Hold). However, medical stocks such as Cyberonics (CYBX - Analyst Report), ResMed (RMD - Analyst Report) and Merit Medical (MMSI - Snapshot Report), each carrying a Zacks Rank #1 (Strong Buy), are expected to excel in the short term.
 

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