RICHMOND, Va., Oct. 20 /PRNewswire-FirstCall/ -- Owens & Minor reported revenue of $1.13 billion for the third quarter ended September 30, 2004, an increase of 6.7 percent, or $70.9 million, compared to revenue of $1.06 billion in the third quarter last year. Earnings per diluted common share (EPS) for the third quarter were $0.38, up 11.8 percent compared to $0.34 for the prior year quarter. Net income for the third quarter increased 18.4 percent to $15.2 million, comparing favorably with net income of $12.8 million in last year’s third quarter.
“The third quarter results reflect a continuation of our positive performance so far this year,” said G. Gilmer Minor, III, chairman and chief executive officer of Owens & Minor. “We are managing the many variables that impact our earnings in a balanced way to produce excellent results. These variables include revenue growth, gross margin pressure, the investment in OMSolutions(SM), expense reduction and asset management. We believe we are part of the solution for driving more efficiency and productivity in the healthcare supply chain. Our eyes are clearly on the ball when it comes to achieving our goals.
“On a personal note, I am proud of all our teammates who were affected by this year’s hurricanes, especially our teammates in Florida and Louisiana, for their rapid and heartfelt response to our customers’ needs during the storms,” said Minor. “The character of a company is tested during a crisis, and the Owens & Minor team rose to the occasion time and again.”
Other Third Quarter Results
For the third quarter 2004, operating earnings held steady at 2.4 percent of revenue when compared with operating earnings in the same period of last year, as improvements in selling, general and administrative expenses (SG&A) offset margin pressures. Gross margin was 10.1 percent of revenue, compared to gross margin of 10.3 percent from the prior year quarter. The company attributed the change in gross margin to reduced alternate sourcing of products, ongoing competitive pressures in the marketplace, and slower than expected contributions from OMSolutions(SM). SG&A was 7.4 percent of revenue, improved from 7.6 percent in the prior year quarter, aided in part by lower healthcare costs when compared to the third quarter of last year.
“This year, we have demonstrated that we are delivering on our commitments,” said Craig R. Smith, president and chief operating officer of Owens & Minor. “Since we are running our core business very efficiently, we have been able to invest in our strategic initiatives, while, at the same time, growing our revenue and earnings at a steady pace. Our focus, as we look ahead, is on improving margins, growing our OMSolutions(SM) business, supplemented by acquisitions and penetration, and working with customers to ensure their success.”
Asset management continued to show strength in the third quarter of 2004, with days sales outstanding (DSO) at 25.8 days, comparing favorably to DSO of 27.5 days from last year’s third quarter. Inventory turns for the quarter were 9.6, down slightly from 9.7 in last year’s third quarter. Cash flow from operations for the third quarter was a strong $57.4 million.
Year-to-date results
Year-to-date, revenue was $3.4 billion, up 7.1 percent from $3.1 billion in the prior year. Net income for the nine months ended September 30, 2004 was $45.1 million compared to $39.3 million, a 14.8 percent increase. Diluted earnings per share for the first nine months of 2004 were $1.14, up 7.5 percent from $1.06 in the same period of 2003.
For the first nine months of 2004, operating earnings were 2.5 percent of revenue, consistent with the corresponding period of 2003, even as the company continued to invest in new strategic initiatives. Gross margin for the first nine months of 2004 was 10.2 percent, compared with 10.4 percent for the same period last year. SG&A improved to 7.5 percent, compared to 7.6 percent for the comparable period of 2003. Cash flow from operations year-to-date was a very strong $128.5 million, driven by excellent asset management.
Outlook for 2004
Financial guidance for 2004 remains unchanged. The company anticipates that it will report revenue growth in the 5 to 7 percent range, and diluted EPS in a range of $1.54 to $1.56 for the year.
Recent Highlights Owens & Minor Acquires Healthcare Consulting Firm
In October 2004, Owens & Minor acquired the assets of HealthCare Logistics Services (HLS), a small, California-based, healthcare consulting firm. HLS is widely recognized for its leadership in providing supply chain consulting and management services to healthcare providers, suppliers, group purchasing organizations and other consulting and services firms. The HLS team of professionals has joined Owens & Minor’s OMSolutions(SM) consulting and outsourcing services group, adding new strength across the nation.
“The addition of the HLS team, with its innovative services, is a plus for OMSolutions(SM) and our customers,” said Smith. “The HLS team brings expertise that is a strong complement to our OMSolutions(SM) offerings in the healthcare marketplace. In particular, HLS will add depth to our team on the West Coast, where we see untapped opportunity for our OMSolutions(SM) business.”
Former President of the Federal Reserve of Richmond Joins O&M Board
Effective August 2, 2004, the Owens & Minor board of directors appointed J. Alfred Broaddus, Jr., the former president of the Federal Reserve Bank of Richmond, to serve on the Owens & Minor board of directors. Broaddus, 65, will serve as a member of the Compensation & Benefits and Governance & Nominating Committees. Broaddus is expected to be nominated for election by the shareholders at the company’s 2005 Annual Shareholders’ Meeting.
Broaddus served as president of the Federal Reserve Bank of Richmond from 1993 until July 31, 2004. During his tenure, he also served as a rotating member of the Federal Open Market Committee of the Federal Reserve System.
Investor Day
Owens & Minor will host its annual Investor Day for institutional investors and financial analysts at the New York Stock Exchange in New York City. The event begins at 8:30 am (Eastern Time) on Thursday, October 28, 2004, and will conclude at 1:30 pm (Eastern Time). Registration for the event is required. The company will webcast the day’s activities via http://www.owens-minor.com/. Contact Trudi Allcott, Manager, Investor Communications, at 804-935-4291 or truitt.allcott@owens-minor.com to register for the event.
Conference Call Details
Owens & Minor will conduct a conference call on Thursday, October 21, 2004 at 8:30 am (Eastern Time) to discuss third quarter 2004 results. The telephone number for the Owens & Minor conference call is 800-299-0148. The call will also be available by replay for 5 days by calling 888-286-8010, with access code: #29735579. The call will also be available as a webcast for 21 days through http://www.owens-minor.com/.
Safe Harbor Statement
Except for the historical information contained herein, 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 include the rate at which new business can be converted to the company, intense competitive pressures within the industry, success of the company’s strategic initiatives, changes in customer order patterns, pricing pressures, changes in government funding to hospitals and other healthcare providers, loss of major customers, and other factors discussed from time to time in the reports filed by the company with the Securities and Exchange Commission. The company assumes no obligation to update information contained in this release.
Owens & Minor, Inc., a FORTUNE 500 company headquartered in Richmond, Virginia, is the leading distributor of national name-brand medical and surgical supplies and a healthcare supply chain management company. With a diverse product and service offering and distribution centers throughout the United States, the company serves hospitals, integrated healthcare systems, alternate care locations, group purchasing organizations and the federal government. Owens & Minor provides technology and consulting programs that enable healthcare providers to maximize efficiency and cost-effectiveness in materials purchasing, improve inventory management and streamline logistics across the entire medical supply chain -- from origin of product to patient bedside. The company also has established itself as a leader in the development and use of technology. For news releases, or for more information about Owens & Minor, visit the company Web site at http://www.owens-minor.com/.
Owens & Minor, Inc. Consolidated Statements of Income (unaudited) (in thousands, except ratios and per share data) Three Months Ended September 30, % of % of % 2004 revenue 2003(1) revenue Fav(Unfav) Revenue $1,134,387 100.0 % $1,063,509 100.0 % 6.7 % Cost of revenue 1,019,537 89.9 954,289 89.7 (6.8) Gross margin 114,850 10.1 109,220 10.3 5.2 Selling, general and administrative expenses 84,480 7.4 80,868 7.6 (4.5) Depreciation and amortization 3,676 0.3 3,868 0.4 5.0 Other operating (income) and expense, net (903) (0.1) (969) (0.1) (6.8) Operating earnings 27,597 2.4 25,453 2.4 8.4 Interest expense, net 3,086 0.3 4,142 0.4 25.5 Discount on accounts receivable securitization - - 199 0.0 100.0 Income before income taxes 24,511 2.2 21,112 2.0 16.1 Income tax provision 9,314 0.8 8,277 0.8 (12.5) Net income $15,197 1.3 % $12,835 1.2 % 18.4 % Net income per basic common share $0.39 $0.37 Net income per diluted common share $0.38 $0.34 Weighted average shares - basic 39,083 35,128 Weighted average shares - diluted 39,682 39,351 Nine Months Ended September 30, % of % of % 2004 revenue 2003(1) revenue Fav(Unfav) Revenue $3,359,836 100.0 % $3,135,980 100.0 % 7.1 % Cost of revenue 3,016,095 89.8 2,811,067 89.6 (7.3) Gross margin 343,741 10.2 324,913 10.4 5.8 Selling, general and administrative expenses 253,030 7.5 237,113 7.6 (6.7) Depreciation and amortization 11,197 0.3 11,801 0.4 5.1 Other operating (income) and expense, net (3,175) (0.1) (3,449) (0.1) (7.9) Operating earnings 82,689 2.5 79,448 2.5 4.1 Interest expense, net 9,375 0.3 11,153 0.4 15.9 Discount on accounts receivable securitization 261 0.0 581 0.0 55.1 Distributions on mandatorily redeemable preferred securities - - 2,898 0.1 100.0 Other expense - - 154 0.0 100.0 Income before income taxes 73,053 2.2 64,662 2.1 13.0 Income tax provision 27,906 0.8 25,348 0.8 (10.1) Net income $45,147 1.3 % $39,314 1.3 % 14.8 % Net income per basic common share $1.16 $1.16 Net income per diluted common share $1.14 $1.06 Weighted average shares - basic 38,986 34,021 Weighted average shares - diluted 39,608 39,321 (1) Certain components of selling, general and administrative expenses and interest expense, net for the 2003 statement of income have been reclassified to cost of revenue and other operating income and expense, net in order to conform to the current presentation. Owens & Minor, Inc. Consolidated Balance Sheets (unaudited) (in thousands) September 30, December 31, 2004 2003 Assets Current assets Cash and cash equivalents $102,342 $16,335 Accounts and notes receivable, net 327,433 353,431 Merchandise inventories 428,551 384,266 Other current assets 28,617 27,343 Total current assets 886,943 781,375 Property and equipment, net 22,196 21,088 Goodwill 198,960 198,063 Other assets, net 42,643 45,222 Total assets $1,150,742 $1,045,748 Current liabilities Accounts payable $377,044 $314,723 Accrued payroll and related liabilities 13,460 13,279 Other accrued liabilities 71,070 67,630 Total current liabilities 461,574 395,632 Long-term debt 208,307 209,499 Other liabilities 31,704 30,262 Total liabilities 701,585 635,393 Shareholders’ equity Common stock 78,832 77,958 Paid-in capital 124,600 118,843 Retained earnings 252,639 220,468 Accumulated other comprehensive loss (6,914) (6,914) Total shareholders’ equity 449,157 410,355 Total liabilities and shareholders’ equity $1,150,742 $1,045,748 Owens & Minor, Inc. Consolidated Statements of Cash Flows (unaudited) (in thousands) Nine Months Ended September 30, 2004 2003 Operating activities Net income $45,147 $39,314 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 11,197 11,801 Provision for LIFO reserve 3,150 3,280 Provision for losses on accounts and notes receivable 1,176 1,938 Changes in operating assets and liabilities: Accounts and notes receivable 24,844 29,815 Merchandise inventories (47,435) (38,801) Accounts payable 82,294 84,681 Net change in other current assets and current liabilities 2,294 (8,111) Other, net 5,812 4,457 Cash provided by operating activities 128,479 128,374 Investing activities Additions to property and equipment (8,105) (4,273) Additions to computer software (3,713) (8,008) Net cash paid for acquisition of business (2,512) - Proceeds from sale of land 1,820 - Other, net 215 274 Cash used for investing activities (12,295) (12,007) Financing activities Repurchase of mandatorily redeemable preferred securities - (20,439) Repurchase of common stock - (10,884) Net payments on revolving credit facility - (27,900) Cash dividends paid (12,976) (9,220) Proceeds from exercise of stock options 4,004 4,303 Decrease in drafts payable (20,000) (26,150) Other, net (1,205) - Cash used for financing activities (30,177) (90,290) Net increase in cash and cash equivalents 86,007 26,077 Cash and cash equivalents at beginning of period 16,335 3,361 Cash and cash equivalents at end of period $102,342 $29,438 Owens & Minor, Inc. Financial Statistics (unaudited) Quarter Ended (in thousands, except ratios and per share data) 09/30/2004 06/30/2004 03/31/2004 Operating results: Revenue $1,134,387 $1,119,375 $1,106,074 Gross margin(1) $114,850 $114,831 $114,060 Gross margin as a percent of revenue(1) 10.1% 10.3% 10.3% SG&A expense(1) $84,480 $84,533 $84,017 SG&A expense as a percent of revenue(1) 7.4% 7.6% 7.6% Operating earnings(1) $27,597 $27,654 $27,438 Operating earnings as a percent of revenue(1) 2.4% 2.5% 2.5% Net income $15,197 $15,325 $14,625 Net income per basic common share $0.39 $0.39 $0.38 Net income per diluted common share $0.38 $0.39 $0.37 Accounts receivable: Accounts and notes receivable, net $327,433 $329,049 $335,028 Days sales outstanding 25.8 25.5 26.1 Inventory: Merchandise inventories $428,551 $413,611 $395,053 Average inventory turnover 9.6 10.0 10.2 Financing: Debt $208,307 $207,032 $211,051 Stock information: Cash dividends per common share $0.11 $0.11 $0.11 Stock price at quarter-end $25.40 $25.90 $25.30 (1) Certain components of selling, general and administrative expenses and interest expense, net for the 2003 statement of income have been reclassified to cost of revenue and other operating income and expense, net in order to conform to the current presentation. Owens & Minor, Inc. Financial Statistics (unaudited) Quarter Ended (in thousands, except ratios and per share data) 12/31/2003 09/30/2003 Operating results: Revenue $1,108,087 $1,063,509 Gross margin(1) $111,489 $109,220 Gross margin as a percent of revenue(1) 10.1% 10.3% SG&A expense(1) $82,682 $80,868 SG&A expense as a percent of revenue(1) 7.5% 7.6% Operating earnings(1) $26,263 $25,453 Operating earnings as a percent of revenue(1) 2.4% 2.4% Net income $14,327 $12,835 Net income per basic common share $0.37 $0.37 Net income per diluted common share $0.36 $0.34 Accounts receivable: Accounts and notes receivable, net $353,431 $323,103 Days sales outstanding 27.8 27.5 Inventory: Merchandise inventories $384,266 $387,356 Average inventory turnover 10.2 9.7 Financing: Debt $209,499 $211,311 Stock information: Cash dividends per common share $0.09 $0.09 Stock price at quarter-end $21.91 $24.10 (1) Certain components of selling, general and administrative expenses and interest expense, net for the 2003 statement of income have been reclassified to cost of revenue and other operating income and expense, net in order to conform to the current presentation.
Owens & Minor, Inc.
CONTACT: Jeff Kaczka, SVP & Chief Financial Officer, +1-804-965-5896,Dick Bozard, VP & Treasurer, +1-804-965-2921, or Trudi Allcott, Manager,Investor Communications, +1-804-935-4291, all of Owens & Minor, Inc.
Web site: http://www.owens-minor.com/
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