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Press Release

November 4, 2013 at 5:12 PM EST

Owens & Minor Reports Financial Results for 3rd Quarter 2013, Including 5.7% Growth in Revenues

Domestic segment revenues increased 2.1% in the third quarter of 2013

RICHMOND, Va.--(BUSINESS WIRE)-- Owens & Minor, Inc. (NYSE:OMI) today reported financial results for the third quarter ended September 30, 2013, including consolidated quarterly revenues of $2.30 billion, increased 5.7% when compared to revenues of $2.18 billion for the third quarter of 2012. The comparative improvement in quarterly revenues resulted primarily from the company's International segment, which contributed $128.9 million to third quarter 2013 consolidated revenues, compared with a one-month's contribution of $49.7 million for the same period last year. The International segment consists of Movianto, which was acquired by Owens & Minor on August 31, 2012.

For the third quarter of 2013, net income was $28.0 million, or $0.44 per diluted share, an increase of 13.7% when compared to $24.6 million, or $0.39 per diluted share, for the same period of 2012. For the third quarter, adjusted net income (non-GAAP), which excludes pre-tax charges of $2.7 million for acquisition-related and exit and realignment activities was $29.9 million, or $0.47 per diluted share, compared to $31.2 million, or $0.49 per diluted share, for the same period last year.

"These results continue to support our belief that our strategy is working despite a shifting healthcare landscape, and we continue to see promise in the market and our ability to tap into new opportunities," said Craig R. Smith, chairman & chief executive officer of Owens & Minor. "Our teams turned in solid performances in the third quarter, capping nine months of improvement in many key areas of the company. Our teams in Europe are also to be commended for achieving a positive result for the quarter. With the support of our dedicated teammates, we are working hard to position our company to capture emerging opportunities in an evolving healthcare market."

Consolidated operating earnings for the third quarter of 2013 were $49.2 million, an improvement of $2.6 million, when compared to operating earnings of $46.7 million for the same period in the prior year. Adjusted consolidated operating earnings (non-GAAP) for the third quarter of 2013 were $52.0 million, or 2.25% of revenues, decreased $2.5 million, when compared to adjusted operating earnings of $54.5 million, or 2.50% of revenues, in the same period of 2012. Third quarter adjusted consolidated operating earnings (non-GAAP) as a percentage of revenues improved slightly on a sequential basis, when compared to the second and first quarters of 2013.

Year-to-Date Results

For the nine months ended September 30, 2013, consolidated revenues were $6.85 billion, an increase of $263.8 million, or 4.0%, when compared to revenues of $6.58 billion for the same period of 2012. Net income for the first three quarters of 2013 was $82.9 million, or $1.31 per diluted share, a decline of 1.3% when compared to net income of $84.1 million, or $1.33 per diluted share, in the same period last year. For the year-to-date period, adjusted net income (non-GAAP), which excludes pre-tax charges of $5.4 million for acquisition-related and exit and realignment activities, was $86.8 million, or $1.37 per diluted share, compared to $91.0 million, or $1.44 per diluted share, in the first nine months of 2012.

Consolidated operating earnings for the year-to-date period of 2013 were $147.2 million, or 2.15% of revenues, compared to operating earnings of $151.7 million, or 2.30% of revenues, for the same period of 2012. Adjusted consolidated operating earnings (non-GAAP) for the year-to-date period were $152.5 million, or 2.23% of revenues, compared to adjusted operating earnings of $160.2 million, or 2.43% of revenues for the same period last year.

Asset Management

The balance of cash and cash equivalents was approximately $154 million at September 30, 2013. For the first nine months of 2013, the company reported cash provided by operating activities of approximately $161 million, compared to approximately $170 million in the same period last year. Asset management metrics for the quarter were positive with Domestic segment days sales outstanding (DSO) of 19.3 days as of September 30, 2013, comparing favorably to days sales outstanding (DSO) of 20.7 days as of September 30, 2012. Domestic segment inventory turns were 10.2 for the third quarter of 2013, unchanged when compared to the third quarter of 2012.

Segment Results

Domestic segment revenues for the third quarter of 2013 were $2.18 billion, an increase of 2.1%, when compared to the prior year's third quarter revenues of $2.13 billion. The increase in third quarter Domestic segment revenues was primarily due to one additional selling day during the quarter, when compared to the same period in the prior year. For the year-to-date period, Domestic segment revenues were $6.47 billion, a decline of 0.9%, when compared to revenues of $6.53 billion for the same period last year. The $59.5 million decline resulted primarily from ongoing market trends such as lower rates of healthcare utilization, reduced government purchasing, and the company's continued rationalization of smaller, less profitable healthcare provider and supplier customers.

For the third quarter of 2013, Domestic segment operating earnings were $51.2 million, or 2.35% of segment revenues, a decline of approximately $3.9 million when compared to operating earnings of $55.1 million, or 2.59% of segment revenues, in the same period of 2012. The decline resulted primarily from lower margin on sales to hospital customers and increased healthcare expenses, partially offset by benefits from the company's sourcing efforts. For the year-to-date period, Domestic segment operating earnings declined $5.4 million to $155.4 million, or 2.40% of segment revenues, compared to $160.8 million, or 2.46% of revenues, for the prior year period. The year-to-date decline resulted from a combination of factors including benefits from a California sales tax settlement and certain supplier price changes, which were offset by increased expenses for healthcare, litigation, and the transition to a new delivery fleet vendor.

The International segment contributed revenues of $128.9 million and operating earnings of $0.7 million to third quarter 2013 results. For purposes of comparison to the third quarter of 2012, the International segment reported revenues of $49.7 million and an operating loss of $0.6 million, representing one month's contribution to quarterly results. Sequential quarterly improvement in the International segment resulted from improved utilization of network capacity, continued growth, and diminishing reliance on transition services from the former parent company. For the year-to-date period, the International segment reported $372.9 million in revenues, along with year-to-date operating losses of $2.8 million, which reduced year-to-date consolidated net income by $0.04 per diluted share. In comparison, the International segment reported revenues of $49.7 million and an operating loss of $0.6 million for the year-to-date period of 2012. For both the quarter and year-to-date periods of 2013, approximately 50% of International segment revenues were derived from fee-for-service customer arrangements.

2013 Outlook

For 2013, the company continues to target revenue growth of 2% to 4%, but is now targeting adjusted net income per diluted share at the lower end of the original guidance of $1.90 to $2.00 for the year, which includes operating results from the Movianto acquisition, but excludes exit and realignment costs, as well as acquisition-related costs.

The 2013 outlook is based on certain assumptions that are subject to the risk factors discussed in the company's filings with the Securities & Exchange Commission.

Highlights & Upcoming Events

  • The Owens & Minor board of directors declared a fourth quarter 2013 dividend of $0.24 per diluted share. The dividend is payable on December 31, 2013, to shareholders of record on December 16, 2013.
  • Owens & Minor signed a five-year agreement with HealthTrust, the group purchasing organization (GPO). The contract, which was effective October 1, 2013, is scheduled to expire on September 30, 2018.
  • Owens & Minor is scheduled to participate in the 2013 Credit Suisse Healthcare Conference on November 13, 2013 in Phoenix. The presentation, which will be webcast, is scheduled for 1:00 p.m. Mountain Time.
  • Owens & Minor has scheduled its Annual Investor Day in New York for Wednesday, December 4, 2013. Owens & Minor executives will provide an operational and strategic overview, as well as the company's financial outlook for 2014. The meeting is scheduled to begin at 8:00 a.m. EST and is expected to conclude 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. Professional Wall Street analysts and investors may register via http://investors.owens-minor.com/registration.cfm.

Investors' 3Q 2013 Conference Call & Supplemental Material

Owens & Minor's management team will conduct a conference call to discuss the third quarter financial results on Tuesday, November 5, 2013, at 8:30 a.m. EST. The access code for the conference call, international dial-in, and replay is #78041849. Participants may access the call at 866-393-1604. The international dial-in number is 224-357-2191. A replay of the call will be available for one week by dialing 855-859-2056. A webcast of the call, along with supplemental information, will be available on www.owens-minor.com under the Investor Relations section.

Information on www.Owens-Minor.com

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.

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) a FORTUNE 500 company headquartered in Richmond, Virginia, is a leading national provider of distribution and logistics services to the healthcare industry and a leading European provider of logistics services to pharmaceutical, life-science, and medical-device manufacturers. With a diverse product and service offering and facilities throughout the United States and Europe, the company serves hospitals, integrated healthcare systems, alternate site locations, group purchasing organizations, healthcare manufacturers, and the federal government. Owens & Minor also provides technology and consulting programs that improve inventory management and streamline logistics across the entire medical supply chain. For news releases, or for more information about Owens & Minor, visit the company website at www.owens-minor.com.

Owens & Minor, Inc.  
Consolidated Statements of Income (unaudited)
(in thousands, except per share data)
 
 
Three Months Ended September 30,
2013 2012
 
Net revenue $ 2,304,599 $ 2,179,895
Cost of goods sold   2,031,270     1,951,772  
Gross margin 273,329 228,123
Selling, general and administrative expenses 211,344 165,320
Acquisition-related and exit and realignment charges 2,747 7,831
Depreciation and amortization 12,441 10,090
Other operating income, net   (2,418 )   (1,781 )
Operating earnings 49,215 46,663
Interest expense, net   3,389     3,066  
Income before income taxes 45,826 43,597
Income tax provision   17,856     19,000  
Net income $ 27,970   $ 24,597  
 
Net income per common share:
Basic $ 0.44 $ 0.39
Diluted $ 0.44 $ 0.39
 
 
 
Nine Months Ended September 30,
2013 2012
 
Net revenue $ 6,846,995 $ 6,583,221
Cost of goods sold   6,021,183     5,929,341  
Gross margin 825,812 653,880
Selling, general and administrative expenses 641,613 471,179
Acquisition-related and exit and realignment charges 5,395 8,448
Depreciation and amortization 37,347 27,184
Other operating income, net   (5,693 )   (4,643 )
Operating earnings 147,150 151,712
Interest expense, net   9,835     9,975  
Income before income taxes 137,315 141,737
Income tax provision   54,374     57,667  
Net income $ 82,941   $ 84,070  
 
Net income per common share:
Basic $ 1.31 $ 1.33
Diluted $ 1.31 $ 1.33
Owens & Minor, Inc.  
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
 
September 30, December 31,
  2013   2012
 
Assets
Current assets
Cash and cash equivalents $ 153,789 $ 97,888
Accounts and notes receivable, net 571,458 553,502
Merchandise inventories 787,803 763,756
Other current assets   246,242     213,748
Total current assets 1,759,292 1,628,894
Property and equipment, net 192,672 191,841
Goodwill, net 274,896 274,884
Intangible assets, net 40,519 42,313
Other assets, net   80,287     69,769
Total assets $ 2,347,666   $ 2,207,701
Liabilities and equity
Current liabilities
Accounts payable $ 689,554 $ 603,137
Accrued payroll and related liabilities 24,793 25,468
Deferred income taxes 49,860 40,758
Other current liabilities   276,697     254,924
Total current liabilities 1,040,904 924,287
Long-term debt, excluding current portion 214,416 215,383
Deferred income taxes 30,185 30,921
Other liabilities   55,841     63,454
Total liabilities 1,341,346 1,234,045
Total equity   1,006,320     973,656
Total liabilities and equity $ 2,347,666   $ 2,207,701
Owens & Minor, Inc.  
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 
  Nine Months Ended September 30,
  2013   2012
 
Operating activities:
Net income $ 82,941 $ 84,070
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 37,347 27,184
Share-based compensation expense 5,162 4,844
Provision for losses on accounts and notes receivable 179 414
Deferred income tax expense 8,424 1,098
Changes in operating assets and liabilities:
Accounts and notes receivable (20,703 ) (7,886 )
Merchandise inventories (23,690 ) 45,301
Accounts payable 93,950 32,467
Net change in other assets and liabilities (21,285 ) (16,355 )
Other, net   (1,159 )     (773 )
Cash provided by operating activities   161,166       170,364  
 
Investing activities:
Acquisition, net of cash acquired - (149,910 )
Additions to property and equipment (25,144 ) (7,890 )
Additions to computer software and intangible assets (20,361 ) (19,934 )
Proceeds from the sale of property and equipment   2,020       3,237  
Cash used for investing activities   (43,485 )     (174,497 )
 
Financing activities:
Cash dividends paid (45,587 ) (41,791 )
Repurchases of common stock (15,701 ) (11,250 )
Financing costs paid - (1,303 )
Excess tax benefits related to share-based compensation 733 1,223
Proceeds from exercise of stock options 4,821 4,114
Other, net   (6,769 )     (4,444 )
Cash used for financing activities   (62,503 )     (53,451 )
 
 
Effect of exchange rate changes on cash and cash equivalents   723       1,313  
 
Net increase (decrease) in cash and cash equivalents 55,901 (56,271 )
Cash and cash equivalents at beginning of period   97,888       135,938  
Cash and cash equivalents at end of period $ 153,789     $ 79,667  
Owens & Minor, Inc.
Financial Statistics and GAAP/Non-GAAP Reconciliations (unaudited)
(in thousands, except ratios and per share data)
   
 
            Quarter Ended
            9/30/2013   6/30/2013   3/31/2013   12/31/2012   9/30/2012
 
Consolidated operating results:
Net revenue   $ 2,304,599   $ 2,266,687   $ 2,275,709   $ 2,324,924   $ 2,179,895  
 
Gross margin $ 273,329 $ 273,431 $ 279,052 $ 270,774 $ 228,123
Gross margin as a percent of revenue 11.86 %   12.06 %   12.26 %   11.65 %   10.46 %
 
SG&A expenses $ 211,344 $ 212,548 $ 217,721 $ 211,415 $ 165,320
SG&A expenses as a percent of revenue 9.17 %   9.38 %   9.57 %   9.09 %   7.58 %
 
Operating earnings, as reported (GAAP) $ 49,215 $ 50,050 $ 47,884 $ 45,041 $ 46,663
Acquisition-related and exit and realignment charges 2,747   638   2,010   1,717   7,831  
Operating earnings, adjusted (Non-GAAP) $ 51,962 $ 50,688 $ 49,894 $ 46,758 $ 54,494
Operating earnings as a percent of revenue, adjusted (Non-GAAP) 2.25 %   2.24 %   2.19 %   2.01 %   2.50 %
 
Net income, as reported (GAAP) $ 27,970 $ 28,872 $ 26,098 $ 24,934 $ 24,597
Acquisition-related and exit and realignment charges, after-tax 1,899   412   1,521   1,237   6,588  
Net income, adjusted (Non-GAAP) $ 29,869   $ 29,284   $ 27,619   $ 26,171   $ 31,185  
 
Net income per diluted common share, as reported (GAAP) $ 0.44 $ 0.46 $ 0.41 $ 0.39 $ 0.39
Acquisition-related and exit and realignment charges 0.03   -   0.03   0.02   0.10  
Net income per diluted common share, adjusted (Non-GAAP) $ 0.47   $ 0.46   $ 0.44   $ 0.41   $ 0.49  
 
Financing:
Cash and cash equivalents   $ 153,789   $ 207,826   $ 218,563   $ 97,888   $ 79,667  
Total interest-bearing debt   $ 216,850   $ 216,994   $ 216,414   $ 217,591   $ 216,924  
 
Stock information:
Cash dividends per common share $ 0.24   $ 0.24   $ 0.24   $ 0.22   $ 0.22  
Stock price at quarter-end   $ 34.59   $ 33.83   $ 32.56   $ 28.51   $ 29.88  
 

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, except ratios)
        Three Months Ended September 30,
2013 2012
% of % of
consolidated consolidated
Amount net revenue Amount net revenue
Net revenue:
Domestic $ 2,175,663 94.41 % $ 2,130,226 97.72 %
International   128,936   5.59   %   49,669   2.28   %
Consolidated net revenue $ 2,304,599   100.00   % $ 2,179,895   100.00   %
 
% of segment % of segment
Operating earnings (loss): net revenue net revenue
Domestic $ 51,213 2.35 % $ 55,120 2.59 %
International 749 0.58 % (626 ) (1.26 ) %
Acquisition-related and exit and realignment charges   (2,747 ) N/A   %   (7,831 ) N/A   %
Consolidated operating earnings $ 49,215   2.14   % $ 46,663   2.14   %
 
Depreciation and amortization:
Domestic $ 8,805 $ 8,801
International   3,636     1,289  
Consolidated depreciation and amortization $ 12,441   $ 10,090  
 
Capital expenditures: (1)
Domestic $ 10,032 $ 8,929
International   4,426     738  
Consolidated capital expenditures $ 14,458   $ 9,667  
 
Nine Months Ended September 30,
2013 2012
% of % of
consolidated consolidated
Amount net revenue Amount net revenue
Net revenue:
Domestic $ 6,474,069 94.55 % $ 6,533,552 99.25 %
International   372,926   5.45   %   49,669   0.75   %
Consolidated net revenue $ 6,846,995   100.00   % $ 6,583,221   100.00   %
 
% of segment % of segment
Operating earnings (loss): net revenue net revenue
Domestic $ 155,364 2.40 % $ 160,786 2.46 %
International (2,819 ) (0.76 ) % (626 ) (1.26 ) %
Acquisition-related and exit and realignment charges   (5,395 ) N/A   %   (8,448 ) N/A   %
Consolidated operating earnings $ 147,150   2.15   % $ 151,712   2.30   %
 
Depreciation and amortization:
Domestic $ 26,775 $ 25,895
International   10,572     1,289  
Consolidated depreciation and amortization $ 37,347   $ 27,184  
 
Capital expenditures: (1)
Domestic $ 34,506 $ 27,086
International   10,999     738  
Consolidated capital expenditures $ 45,505   $ 27,824  
 
September 30,

2013

December 31,

2012

Total assets:
Domestic $ 1,749,805 $ 1,723,699
International   444,072     386,114  
Segment assets 2,193,877 2,109,813
Cash and cash equivalents   153,789     97,888  
$ 2,347,666   $ 2,207,701  
 
(1) Represents additions to property and equipment and additions to computer software and separately acquired intangible assets.
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,
2013 2012 2013 2012
Numerator:
Net income $ 27,970 $ 24,597 $ 82,941 $ 84,070
Less: income allocated to unvested restricted shares   (186 )   (153 )   (541 )   (574 )
Net income attributable to common shareholders - basic 27,784 24,444 82,400 83,496
Add: undistributed income attributable to unvested restricted shares - basic 59 53 185 229
Less: undistributed income attributable to unvested restricted shares - diluted   (59 )   (53 )   (185 )   (228 )
Net income attributable to common shareholders - diluted $ 27,784   $ 24,444   $ 82,400   $ 83,497  
 
Denominator:
Weighted average shares outstanding — basic 62,605 62,763 62,678 62,806
Dilutive shares - stock options   26     78     41     84  
Weighted average shares outstanding — diluted   62,631     62,841     62,719     62,890  
 
 
Net income per share attributable to common shareholders:
Basic $ 0.44 $ 0.39 $ 1.31 $ 1.33
Diluted $ 0.44 $ 0.39 $ 1.31 $ 1.33

Owens & Minor, Inc.
Trudi Allcott, Director, Investor & Media Relations, 804-723-7555;
truitt.allcott@owens-minor.com
Chuck Graves, Director, Finance & Investor Relations, 804-723-7556;
chuck.graves@owens-minor.com

Source: Owens & Minor, Inc.

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