Provider of drugs to long-term care facilities and nursing homes, Omnicare Inc. ( OCR - Snapshot Report ) posted fourth-quarter 2012 adjusted (excluding one-time expenses) earnings per share of 86 cents surpassing the Zacks Consensus Estimate of 85 cents. For 2012, the company reported adjusted earnings per share of $3.36 beating the Zacks Consensus Estimate of $3.34.

Reported net income in the quarter jumped 89.3% year over year to $59 million (or 54 cents per share).

Revenues

Net sales decreased 1.7% year over year to $1,530 million in the fourth quarter, beating the Zacks Consensus Estimate of $1,508 million. For 2012, revenues remained roughly flat y/y at $6,160 million surpassing the Zacks Consensus Estimate of $6,133 million.

Net sales of the Long Term Care Group were $1,184 million in the quarter, down 7.3% year over year. Net sales of the Specialty Care Group were $346 million, up 25.4% year over year.

Margins

Adjusted EBITDA margin picked up 20 basis points year over year to 10.7% in the reported quarter. Adjusted operating margin increased 30 basis points to 8.9%.

Adjusted operating income from continuing operations for Long Term Care Group improved 6.2% year over year to $155 million. The same for Specialty Care Group jumped 33.3% to $36 million in the quarter.

Balance Sheet, Cash Flow and Other

Omnicare exited the fourth quarter with cash and cash equivalents of $454.2 million, down 21.7% year over year. Long-term debt (including notes and convertible debentures) rose 3.2% year over year and was sizeable at $2,030 million. Cash flow from continuing operations climbed 26.7% year over year to $128 million.

Omnicare repurchased about 0.8 million shares in the fourth quarter for $28 million. The company had $220 million available under its recent share repurchase authorization, as of Dec 31, 2012.

Outlook

For 2013, Omnicare anticipates revenues between $6.1 billion and $6.2 billion. The company forecasts adjusted earnings per share (from continuing operations) in a range of $3.47 to $3.57. Omnicare also expects cash flows (from continuing operations) in the range of $450 million to $500 million.

Omnicare is a market-leading provider of long-term care pharmacy services for individuals directly and indirectly through subsidiaries, across North America. It competes with PharMerica Corporation ( PMC - Snapshot Report ) in certain niche segments.

Omnicare has shown significant improvement in margins, attributable to new generic introductions and cost containment efforts. The company’s performance in the most recent quarter negated external pricing pressure and reimbursement cuts.

Moreover, generic launches in the next few quarters present a major opportunity due to Omnicare’s direct access to manufacturers and current greater exposure to the institutional pharmacy channel than in the past couple of years. Operational synergies from the buyout of Five Star’s pharmacy business are also expected to materialize in 2013. However, the company continues to rely on Medicare and Medicaid programs for a major share of its revenues.

We currently have a Zacks Rank #2 (Buy) on the stock. Air Methods Corp. ( AIRM - Snapshot Report ) and Covance Inc. ( CVD - Snapshot Report ) also carry a Zacks Rank #2 (Buy) and are expected to do well.