Omnicell Inc. (OMCL) reported EPS of 9 cents during the second quarter of fiscal 2011, beating both the Zacks Consensus Estimate of 8 cents and the year-ago quarter EPS of 4 cents. Reported earnings shot up 125% on a year-over-year basis primarily due to the reduction in effective tax rate from 60% in the year-ago quarter to 35% in the reported quarter.
Revenues in the reported quarter increased 5.6% year over year to $64.4 million and surpassed the Zacks Consensus Estimate of $63 million. Product revenue, contributing 77.3% of revenues, increased 15.0% to $49.7 million in the quarter while the same from Services and Others (contributing the rest), witnessed an upside of 12.3%.
Cost of Product sales were up 13.6% to $22.4 million in the quarter. However, cost of Services and Others revenues witnessed a year-over-year spike of 1.3%. As a result, gross margin contracted 196 basis points (bps) to 53.4% during the quarter.
The company’s research and development (R&D) expenses jumped 13.9% to $6.0 million while selling, general and administrative (SG&A) expenses plunged 2.7% to $23.6 million. This led to a 30 bps expansion in operating margin to 7.4% during the quarter.
At the end of the reported quarter, the company had cash and cash equivalents of $179.3 million compared with $175.6 million at the end of December 2010.
Omnicell stands to benefit from favorable demographic trends, regulatory environments and a lack of nursing staff. As the information technology market is growing in leaps and bounds coupled with increasing investment from healthcare industries, Omnicell is confident about its success in the near to medium term, specially aided by its SinglePointe and Anywhere RN products.
Currently, an increasing number of institutions are seeking to shift to the automated mode by procuring medication and supply solutions to efficiently address the shortage of nursing facilities in the US. In recent times, Omnicell has partnered with several companies to expand its business including the Schneck Medical contract, University of Chicago Medical Center, Wellmont Health System. The company also entered into a partnership with Cardinal Health (CAH) to support the CardinalASSIST automatic replenishment program.
However, constrained hospital spending remains a primary concern for the company. Moreover, the company faces intense competition in the medication management and supply chain solutions market from major players such as CareFusion Corporation (CFN) and McKesson Automation (MCK).
Currently, Omnicell retains a short-term Zacks #2 Rank (Buy). However, over the long term, we remain ‘Neutral’ on the stock.
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OMNICELL INC (OMCL): Free Stock Analysis Report
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