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Omnicell Inc. (OMCL - Free Report) reported third-quarter 2013 adjusted earnings of 23 cents per share (considering stock-based compensation as a regular expense), up 9.5% from year-ago adjusted EPS of 21 cents. However, the result remained on par with the Zacks Consensus Estimate.

On a reported basis, Omnicell’s net income was $7.8 million (or 21 cents per share), higher than $6.0 million (or 17 cents per share) in the year-ago quarter.

Quarter under Review

Revenues in the third quarter (including the results of MTS Medication Technologies) grew 11.5% year over year to $94.0 million but was consistent with the Zacks Consensus Estimate. Growth was led by balanced segmental improvement with solid win of U.S. government orders. As per management, more than half of the Veterans Administration hospitals became the company’s customers.

The company received record orders in the quarter, of which 35% (for automated dispensing systems) came from new and competitive conversion customers.

Product revenues, contributing 80.3% of total revenue, rose 11.9% to $75.5 million, while Services and Others (contributing the rest) witnessed an upside of 9.7% to $18.5 million. Segment-wise, Acute Care business recorded revenues of $70.6 million while Non-Acute Care segment revenues were $23.4 million.

Cost of product sales were up 10.9% year over year to $33.9 million while cost of services and other revenues increased 5.4% to $8 million. However, gross profit improved 12.9% to $52.0 million. Consequently, gross margin expanded about 69 basis points (bps) to 55.3% in the quarter.

Omnicell’s research and development (R&D) expenses climbed 18.3% to $6.5 million while selling, general and administrative (SG&A) expenses rose 18.6% to $34.8 million. Accordingly, operating margin contracted 192 bps to 11.4% in the quarter.

Omnicell exited the quarter with cash and cash equivalents of $116.2 million, compared with $62.3 million at the end of 2012.


Omnicell narrowed its 2013 revenue guidance to the range of $375–$378 million (estimated growth of 19–20%) from the earlier guided range of $370–$380 million (expected growth of 18–21%). The current Zacks Consensus Estimate of $375 million coincides with the lower end of the revised range. While expected revenue growth for Acute Care segment is 10–12% (unchanged), the same for Non-Acute segment is 60% to 70% (unchanged).

The company’s adjusted EPS forecast lies in the band of $1.05–$1.07 (versus 99 cents–$1.07 guided previously). The Zacks Consensus Estimate is pegged at 86 cents.

At the end of 2013, Omnicell expects backlog to come in at $160–$165 million while it projects product bookings of $305–$315 million.

Our Take

Omnicell reported a mixed third-quarter 2013 with both the top and bottom lines consistent with the Zacks Consensus Estimate. Rising operating costs during the quarter significantly put pressurize 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, Omnciell serves a niche industry and stands to gain from its three-pronged strategy of domestic expansion, 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 #3 (Hold). On the other hand, medical sector stocks that warrant a look include Align Technologies Inc., (ALGN - Free Report) , Cardinal Health, Inc. (CAH - Free Report) and Mindray Medical International Limited . All of these carry a Zacks Rank #1 (Strong Buy).         

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