Owens & Minor, Inc. (OMI) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Owens & Minor First Quarter 2021 Earnings Conference Call. I would now like to hand the conference over to your first speaker today to Chandrika Nigam, Director, Investor Relations. Ms. Nigam, you may begin. Chandrika Nigam: Thank you, operator. Hello, everyone and welcome to Owens & Minor first quarter 2021 earnings call. Our comments on the call will be focused on financial results for the first quarter of 2021, our ongoing response to the COVID-19 pandemic and our outlook for 2021, all of which are included in today’s press release. I would also like to call your attention to supplemental slides related to our 2021 outlook posted on our website in the Investor Relations section. Ed Pesicka: Thank you, Chandrika. Good morning, everyone. I appreciate you taking the time to join us on the call today. As I reflect back on the call from a year ago, we were still unsure of what COVID-19 pandemic had in store for us. But here we are today continuing to battle the impact of COVID-19. At Owens & Minor, we are incredibly proud of the small role that we have played and that we will continue to play in this battle. It is our hope that it will soon be behind us so that we can serve our customers beyond their pandemic needs. However, in the meantime, I would like to again thank all the Owens & Minor teammates, along with all the frontline workers for their dedication, sacrifice and commitment to winning this battle. From a business perspective, the Owens & Minor team certainly stepped up in 2020. I am also very pleased with our continuation of the momentum and the utilization of our solid foundation built in 2020, which has enabled us to deliver a strong start to 2021. This strong start includes a record first quarter, along with our raised guidance for the full year. And while it maybe some time until we return to a more normal earnings pattern, it should be clear that we deliver on what we say we are going to do. In fact, delivering on our commitments is ingrained in our values and core to everything we do, whether working with customers, suppliers, teammates or shareholders. Andy Long: Thank you, Ed and good morning everyone. Today, I will review our first quarter financial results and the key drivers for our quarterly performance and then I will discuss our expectations and assumptions for the rest of 2021. We are pleased to report a strong first quarter, with good growth in revenue and earnings per share. Earlier today, we announced our revised full year adjusted net income guidance, which has been increased to $3.75 to $4.25 per share and our full year adjusted EBITDA projection of $450 million to $500 million based on our current outlook for the remainder of the year. I will elaborate on all of these in my remarks today. Beginning with the top line, revenue for the first quarter was $2.3 billion compared to $2.1 billion for the prior year. This represents 10% growth that primarily occurred in our Global Products segment as the momentum that we achieved as we exited Q4 carried into Q1. As we guided last quarter, we have experienced and will continue to see higher nitrile glove acquisition costs relative to last year. And as previously discussed, higher glove costs are being largely passed through, resulting in higher revenue. In Q1, there was a revenue lift of approximately $160 million due to this dynamic. Also, I want to remind you that the bottom line impact is expected to be minimal over time, but in any particular quarter, this could have a positive or negative impact on earnings due to the timing of when price and cost changes hit the P&L. We have raised the expected revenue impact of the pass-through of these cost increases to $700 million to $800 million for the year. Operator: I show our first question comes from the line of Michael Cherny from Bank of America. Please go ahead. Michael Cherny: Good morning and congratulations on another very solid quarter. So, I want to just dive in on this commentary you have on PPE and as you think about the future. So many of the questions, I think, that you and some of the others are trying to answer is what does Owens & Minor look like in a post-COVID world, whatever that means? And so as you think about the conversations you are having with your – both customers and prospects now, what are they telling you in terms of how they foresee PPE being used and whether it’s gloves, masks, gowns, whatever it might be, but all of the products that you sell in this future state that gets you comfortable with that well above pre-COVID level? Ed Pesicka: Okay. Mike, this is Ed. So thanks for the question, and thanks for joining us today. So, I think we do spend a significant amount of time listening to our customers. And a couple of things we are hearing is what they have proven during this pandemic is that the high utilization of PPE has drastically reduced infection spread, which is critical no matter of what you are doing in the hospital. And the other thing they are telling us is that they believe that the healthcare protocols they put in place to solve that problem have been in place now for a year, and they expect those protocols and just the daily usage of PPE, again, to remain significantly above where it was pre-pandemic. The amount of changes of PPE continues to be at that high level. In addition to that, we have had some customers say that while the shortage lasted, they were using certain – excuse me, reusing certain aspects of PPE that now they are getting away from reusing it and now going back to more disposable because they have the ability to get more of that. So, that’s why we believe it’s going to be drastically higher than where it was pre-pandemic. It will be slightly lower than it was at the peak, and that’s – we believe that because we think in stockpiling is going to – stockpiling is part of the reason why we think it would be slightly below that peak. But we still see customers continuing to build stockpiles or we are building stockpile for them or we are creating idle capacity in our production lines. So, that way, should there be another pandemic, we have the ability to provide the products for them. The other aspect of this, if you think – start to think about it, is beyond the healthcare field. Currently, we are not selling to non-healthcare industries, whether that’s retail, international and consumers. There is opportunities for us once we get our customers completely satisfied with their PPE over the long-term. They continue to move into more or new adjacent or verticals with that product, too. So I think, Michael, it’s really the combination of the 2 things. It’s back to, hey, healthcare protocols have changed. It changed drastically. It’s validated the fact that if you constantly use PPE and use it appropriately for the clinicians as well as anybody entering the hospitals, you can drastically reduce the spread of infection. Those protocols are in place. We expect those to continue, and that’s where we expect to be much higher than it used to be. I think you continue to have the need for medical-grade PPE. You have stuff that was being reused no longer being reused. You have stuff that was part of emergency use authorization that, that’s being removed that now they want more medical-grade. And opportunities beyond healthcare for us to expand in other markets, that’s what we are seeing. And that’s why we expect this to continue – that the demand to be well above pre-pandemic levels into the future. Michael Cherny: And just along those lines, as you think about your Global Products business in particular, especially given the strong financial position the company is in at this point in time. How do you think about building out that portfolio? And essentially, given the window you have had into your clients’ infrastructure, especially during COVID, how do you think about where the portfolio sits right now versus other opportunities that you could have to drive incremental value over time? Ed Pesicka: Michael, that’s exactly – you bet. That’s exactly right. And we are going to talk a lot about that on May 26 and at our virtual Investor Day. Really, that’s one of the key drivers for us to ignite growth going forward, that focus on that portfolio expansion. We have got multiple great brands in the market. We have got Halyard. We got MediChoice. We have got other brands. And it’s going to be the ability to broaden that product portfolio with our brands that’s going to drive and ignite significant growth move forward. But just to leave the teaser out there, please plan on joining us May 26 at our virtual Investor Day, where Chris Lowery, who runs that business, is going to go into this in much greater detail. Michael Cherny: Yes. Thanks for the questions. Operator: Thank you. I show our next question comes from the line of Daniel Grosslight from Citi. Please go ahead. Daniel Grosslight: Hi, guys. Thanks for taking the question and congrats on the continued momentum here. Product margins continued to come in much better than we and The Street are anticipating. It’s up around 750 basis points sequentially. You mentioned some of the drivers of that outperformance this quarter, but I was curious if you could put a finer point on the particulars there. How much of that margin outperformance was due to this glove price cost mismatch this quarter? And as we think about the rest of the year, should we think about run rate closer to where you ended last year in products margin? Ed Pesicka: Sure. Great. I will let Andy start, and then I will add some color at the end. Andy Long: Good morning Daniel. So yes, in terms of a very, very strong quarter in terms of gross margin and overall bottom line performance, sequentially gross margins up over 200 basis points from where we were in Q4. And I think a lot of that is, as we talked about, the continuation of the momentum that we saw coming out of Q4 going into Q1 of this year as we approach more of the full utilization of the prior investments that we have put into place with our PPE capacity expansion. So, we are continuing to get the benefits of the volume and the fixed cost leverage and the efficiencies that have come through in the quarter in the products business. And another dynamic in the quarter, as you pointed out, is this is really the first quarter where we have started to see the impact of the change in glove costs that are being passed through to us from the manufacturers where we actually do purchase gloves from our – the piece that we don’t manufacture internally. And so the dynamic there is that the price changes in the market can be – the market price changes can take effect much quicker than the cost changes. Remember, the cost changes take time because of delivery times overseas and then they have to work their way through inventory. So, there is a delayed effect. So, those are really the 2 key contributing factors to the sequential gross margin improvement. And then looking long-term, first of all, I would point you to our full year guidance on gross margin for the year, in that mid-15% range. And that really reflects the fact that the timing benefit of the glove cost pass-through will even out in the second half of the year. So, I think that would be kind of more of that long-term view, looking towards the guidance that we provided. Ed Pesicka: And Daniel, first, thanks for joining us on the call today also. And I will add – those 2 comments are spot on. You have the timing on the gloves as well and that will balance out as the year progresses, and obviously, we have our margin projections for the full year that we disclosed. But the other side there really is continuing to get fix cost leverage and drive operating efficiencies. I talked about it. To make it as simple as this, is we have to find ways to get better every single day, whether that – we really leveraged our Owens & Minor business system and that continuous improvement. Frankly, when you think about the amount of additional products we have coming off our lines, the amount of volume we push through our factories, we are continuing to learn how to be more productive and more efficient in the manufacturing of that PPE. And I think that also shines through in the first quarter as we are continuing to produce as much products as we possibly can. Daniel Grosslight: Got it. Okay. And then on your capital deployment priorities, you mentioned that you are investing in the business in working capital and in inventory. Curious on your philosophy of continued debt pay-down versus share repurchase versus a dividend increase for this year and next. How are you thinking about those capital deployment priorities outside of the investment in the business? Ed Pesicka: Yes. I want to at least cover the investment in the business, and then we will talk a little bit about the capital deployment outside investment. I think, Daniel, what’s important to understand is what we are not going to do is get caught flat-footed as the market continues to adjust. So, we were clear. We invested in operational investments as well as inventory because we anticipated elective procedures to start to ramp back up. And that’s exactly what they did at the end in March. They really accelerated in March, and we made sure that we have the right inventory and the right operational expertise there to be able to deliver on that. So, we put that as a key priority because that continues to build customer trust and continues to provide long-term partnership, long-term profitable growth for the business. On the capital deployment side of it, I think the way we will think about it is – obviously, Andy has talked about this a lot, we are going to have a disciplined capital investment approach. We are going to focus on opportunities to invest for long-term profitable growth within the business. And I think related to dividend, the way we think about it right now, there are tremendous amount of opportunities we have to invest that we believe can provide that long-term profitable growth at high levels. And that’s going to be our primary focus. With that, let me turn it over to Andy to add maybe a couple of more comments on how we progress, see our debt and debt leverage going forward. Andy Long: Yes, absolutely. Thank you, Ed. So in terms of, as I had said, our capital deployment strategy and process being very disciplined – and I agree with Ed. I think the priorities in the business are reinvesting in the business, and that manifests itself in both in operating, if you will see that hitting the P&L, through operating expense investments as well as you will notice in the quarter, we did increase our guidance on capital expenditures for the year. So, we do plan to expand our investments on both fronts. And looking long-term, I think the cash flow that’s being generated with the business will be – will have ample funds to fund those investments in the business and still have cash flow left over to continue to make the improvements that we have seen in our balance sheet. We are still targeting to be in that 2x to 3x leverage range, and quite frankly, being at the lower end of that range is very realistic in the short-term and long term. Daniel Grosslight: Got it. Thanks guys. Operator: Thank you. I show our next question comes from the line of Jailendra Singh from Credit Suisse. Please go ahead. Jailendra Singh: Thank you and good morning. Congrats on a good quarter. I actually want to better understand the Global Solutions revenue trends in the quarter coming in at flat year-over-year, but down 5% sequentially. Can you provide some of the factors that drove sequential decline in revenues in that business? And excluding the impact of glove cost pass-through, do you expect that business to sequentially grow for rest of 2021? Ed Pesicka: So Jailendra, this is Ed. Thanks for joining us on the call. So I think first and foremost, so that business was really made up of 2 items. It’s our medical distribution and our patient direct business, our Byram business, and both of those businesses were negatively affected by 1 less billing day in Q1 this year versus Q1 last year. So, that was one of the impacts on it. If you think about it, it’s a consumer based business, if you have less days, in the quarter less billing days, you have less revenue. I think there is a clear expectation, and we are seeing that already, for that business to continue – that business should be able to continue to grow. We look at that business in a lot of ways. That business – when I say that business, the medical distribution, we are sitting there with net new wins. So PPE aside, we have got net new wins that we are beginning to implement. We started to implement many of those at the end of Q1. In addition to that, we have seen elective procedures starting to ramp in March, and we expect that to continue through the year. And like I just spoke earlier, we are well positioned on that to make sure we have the ability to capitalize on that as the elective procedures start to ramp, where they are ready to serve. I haven’t talked about this, but our pipeline of opportunity in our medical distribution is greater than it’s been in my 2 years that I have been here. There are more opportunities for us to continue to capture and then capture new wins. The reality is though any of those you do, it takes probably 6 months to 9 months until you start to implement those. So, those would be late in the year as possible. In addition to that in Global Solutions, we continue to work with our customers to renew contracts in advance of the expiration, so that way, you don’t have that risk when it’s out there. If you look at our patient direct business that’s part of it, we continue to grow our existing relationships with our customers and broaden what we do for them. We are entering into new relationships to expand our market opportunities in various existing chronic conditions that we currently support. In addition to that, we have invested in our patient direct business in pursuit of organic growth in under-penetrated areas. So, those are all the reasons why we expect this segment to continue to be strong and strengthen as the year progresses. And I think the first quarter is really a result of – if you look at it year-over-year, again, again 1 less billing day year-over-year that had a slight impact on it. Jailendra Singh: Yes. Actually, can I have a follow-up on your comments around Byram patient direct business? Can you be more specific, like what are the key drivers kind of driving outperformance there and how much of that is sustainable? And maybe talk about some initiatives you are focused to further drive growth in that business? Ed Pesicka: Yes. So I will just cover a couple of, which I just briefly touched on before. So, we did – we looked at our commercial organization and did an analysis across the U.S. And we recognize there are some pockets where we were, call it, we were under-penetrated. And we actually invested in new commercial resources in those areas to capture share in different parts of the U.S. where we already have relationships with the payers. So, that’s one example of a simple investment. Another is with – we brought on a new line in an existing chronic category that we were in. It was just that – there was an expansion of additional products within that line where we are seeing significant growth. And then lastly, our presence in diabetes, we have a strong presence in diabetes, and that is one of the fastest growing areas of healthcare that’s also driving the ability to grow. And then you look at it more from a macro level, Jailendra, and you think about home health. The one thing the pandemic has proven is home health is here to stay. And it’s going to – we believe it’s going to be able to continue to grow at a very fast pace. And we believe that because we can impact 85% of insured Americans with our contracts and relationships, as that grows we have the ability to grow. Jailendra Singh: Okay. And one last one quick here, with the sequential decline in EPS from first half to second half this year, which you are indicating and the guidance seems to imply, are you still comfortable with the double-digit EPS growth in 2022? Because the double-digit growth next year would imply much higher growth compared to second half run rate. Maybe just provide quick color there? Ed Pesicka: Yes. We haven’t disclosed 2022 guidance yet, and that will happen later in the year. Jailendra Singh: Okay. Thank you. Operator: Thank you. I show our next question comes from the line of Robert Jones from Goldman Sachs. Please go ahead. Robert Jones: Good morning. Thanks for taking the question. Ed, I guess, just to go back to some of the rationale behind the guidance raise. It sounded like improved line of sight was a part of that. Obviously, seeing ahead in this pandemic window around PPE is obviously challenging, but interested in those comments. Could you maybe share a little bit more detail regarding how you are expecting things to trend relative to the results you posted this quarter? And it couldn’t help, but notice you mentioned a few times that PPE volumes obviously normalizing at some point beyond peak levels. Are we at peak levels today as you think about the line of sight over the balance of 2021? Ed Pesicka: Yes. I would say right now, if I think about where we are as a company, we are probably at that peak level. Our machines are running – outside of gloves. So, let me separate gloves in this conversation. So all the investments we made, we are still running at capacity, we still have strong demand. And I think this is what’s – the other aspect of why we think it continues with us is we are one of the few companies that actually manufacture our own product. We are one of the few companies that manufacture on scale. We are one of the few companies that manufacture the entire suite of broad based portfolio line of PPE. So all of those become important because you can come to one location and get fit tested for N95, so we can provide all the product that’s needed versus having to work with 30 or 40 different smaller manufacturers. I think that’s something why we see ourselves at peak and that extending for an extended period of time, plus some of the longer term relationships we’ve worked with all the support – we work with our customers because of all the support we provided them during the pandemic. So that’s critical. The one area I would say no one is our glove manufacturing. So we talked last quarter that we are doing a significant investment in our factory in Thailand to expand our gloves. In addition, a part of that investment we’re doing is we’re continuing to enhance our employee workspace, too. So we’re really setting that up for growth of our own manufacturing of gloves. That’s the one area where there still is constraints, and it gives us the ability to help fill some of those demands. So I would say that gloves is still not at its peak. And that’s how we see that PPE space going forward. Robert Jones: No, that’s helpful. And I guess maybe just one big picture question, and I have a feeling we will probably wait for the Analyst Day for more on this. But clearly, improving the balance sheet has been a big focus, as you and Andy discussed in the prepared remarks. As you think about that normalized PPE level below peak but above historical trend and then thinking about where you are on the distribution side. And obviously, that will recover, you would imagine, as the industry and utilization recovers. Do you think about adding like a third leg to the stool? Or when you think about capital deployment and investment, is it really more within the two businesses that you currently obviously operate today? Ed Pesicka: Yes. We are going to cover that in a little more detail on May 26, of where we’re going to be investing. But I think let’s hold it until then if we can because with us starting to get into it here, but it will take a long period of time, but I would prefer holding it to May 26 when we talk about capital deployment, our M&A strategy as well as our investments into what businesses we are going to invest in. Robert Jones: That’s fair. Looking forward to it. Thanks, Ed. Ed Pesicka: Yes. Operator: Thank you. I show our next question comes from the line of Eric Coldwell from Baird. Please go ahead. Eric Coldwell: Thanks. Good morning. I was hoping you could just hit quickly on cash flow, the influences in the quarter and then how you see cash flow phasing through the year? And I have a couple of follow-ups. Thanks. Ed Pesicka: Shall let Andy take that one. Andy Long: Yes, good morning, Eric. So yes, as we look at cash flow, cash flow in the quarter generated about $25 million, and that was lower than where we were last year at this time, and there is really a number of factors driving that lower cash flow figure. And I’d say, probably, first and foremost, is working capital investment. So with growth in the business, we’re continuing to invest in working capital. I think the good news is, is that accounts receivable is performing as we expected. Days are in line with where we wanted to be. Our aging profile is good. Inventory is up. That’s consuming cash. But again, that’s a very proactive, meaningful investment in inventories that is talked about, right? We want to maintain service levels. We want to put in inventory in advance of new customer wins. We want to make sure inventory is available, should elective procedures tick up. And when they did pick up, we were ready for it. So that’s all very purposeful and intended investment. I’d say we’re – probably the drain on working capital is, historically, when inventory is up, you get a nice offset in your accounts payable. And that’s not happening for us. And a key driver of that, it really comes back to gloves. You’ve seen the impact of the glove manufacturers, third-party manufacturers in Asia, the influence that they have had on pricing, we’ve talked about that a lot. But they also have influence on payment terms. So what we’re seeing is that we’re accelerating payments, in some cases, to glove manufacturers. The cycle time then to get the product into the United States has been delayed as the backups in the West Coast with the ports getting product in, so that’s caused a delay. And the combination of the two, Eric, has really led to the fact that we’re seeing longer cash collection cycle times. And that’s caused a little bit of a drain on working capital. Now again, over time, we expect that to work out and even out and improve as we move through the year, but that certainly played a big factor in the first quarter. Just another comment on cash flow that’s unrelated to gloves. Just to note that while we did increase our guidance on capital investment, capital expenditures, that also will be very tail-end-loaded. So our guidance is in the $80 million to $90 million for the year. I think we spent less than $6 million or $7 million in the first quarter. So expect that to have a drain in the second half of the year. Eric Coldwell: That’s a great answer. Thanks for that. The other one I had remaining was just maybe putting a little more pressure on to see if you would actually quantify the impact of the profit timing on the nitrile gloves in the quarter. We all realize that, that is expected to be net neutral to profit over time. But it would be helpful to understand the actual influence in Q1. I don’t know if you want to do dollar terms or percent of the operating margin increase in Global Products or however, but little finer point on the actual influence of that would be, I think very helpful to everyone. Andy Long: Sure, Eric. So I guess the two data points that I would point you to in the quarter would be the top line impact of the $160 million, and again, the guidance that we’ve tried to provide on the full year of the $700 million to $800 million impact. So that’s one data point. And in terms of margins, while we haven’t really disclosed any of the many drivers of our gross margin improvement, the one point that I would probably turn to is just looking at the sequential profit change in the Global Products segment from Q4 to Q1, the 75% pull-through that we saw sequentially. So that might be another data point to help quantify the impact. But you’re absolutely correct that we expect that tailwind to become a headwind in the second half of the year as cost catches up with the price increases. And over the long period, long-term, we expect as those prices and costs normalize, that, that impact in total over that period will be very minimal. Ed Pesicka: And even with that, that balancing and through the year, front half versus back half of the year, we’re still extremely comfortable and confident in our new range that we put out there. Eric Coldwell: Yes. No, that’s great. So not unreasonable to assume Global Products margin would have been somewhat similar to second half ‘20 absent this impact? Andy Long: I think for modeling purposes, I think that’s reasonable. Eric Coldwell: Yes. Thanks very much guys. I appreciate it. Operator: Thank you. I show our next question comes from the line of Kevin Caliendo from UBS. Please go ahead. Kevin Caliendo: Thanks. Thanks for taking my question. I wanted to talk a little bit about the solutions margin. I know there is some seasonality to it, and you talk about some of the improvements. Was there anything one-time in nature that affected margin this year other than sort of the volumes? And how should we think about the progression? I know it increased year-over-year. Is there – should we expect sort of a year-over-year improvement similar to what we saw in terms of absolute basis points on a quarter-by-quarter basis? You said it would improve over the course of the year. I’m just trying to understand how to think about modeling the operating margin for that business going forward. Andy Long: Good morning. Kevin, it’s Andy. And again, thank you for joining us today. So, looking at Global Solutions margins in the first quarter and specifically looking at it sequentially from Q4, so you did see the volume drop off sequentially Q4 to Q1 on the top line. Again, key drivers, is historical seasonality and also just a slight easing of pandemic volumes. And then you see the corresponding margin change as a result of volume. That’s one of the key drivers. Also, there is an element of seasonality in the Global Solutions business, and in particular, it’s driven by the – our patient direct Byram business. And the reason for that is, as you get into the first quarter of the year, you see a change in your payer mix, right? So you see it more weighted towards the individual or the consumer as opposed to the payer, and that’s because the individual has not yet met their deductibles. And with that mix shift, more towards the payer, we appropriately reserve for that payment or collection risk that’s associated with that. And again, that eases as you move through the year as the payer mix normalizes and shifts back towards the payer. And then we continue to invest in the business and drive productivity. So I think those are really the four dynamics that look at that drive that business sequentially. And then longer term, as we look at that business, again, the patient direct business continues to perform very strong and that continues to drive solid margins and in the medical distribution business. As we’ve said, it’s really a fixed cost leverage gain, right? So it’s the additional volumes that we can put through that business should generate additional fixed cost leverage in that business. Ed Pesicka: And I’ll add just a little bit just to comment on some of those investments. And I talked about it earlier, not only do we invest in inventory and working capital, we also invest some operating expense for one, elective procedures ramp up; and two, for new wins. So we wanted to make sure when we did – we do have a new win, we will actually put the expense in advance of the implementation so that way, the implementations are flawless. And we’ve had several of those that happened in the first quarter, where we did put the expense in, in advance to make sure we were prepped, and the execution of those implementations went flawless and we had three customers reach back out to us complimenting us how – the only thing they saw was the next day, an Owens & Minor truck showed up, somebody else’s, but they got all the product they needed, stuff showed up on time. It was accurately picked and it was everything they needed. So we will make those investments in advance, and we did some of that in Q1. Kevin Caliendo: That’s great. And just a quick follow-up, you talked about the impact of the gloves and the pull-through this quarter and how that’s going to normalize over the course of the year. But if we think about the net net net, the impact that we saw in 1Q versus the normalization expected over the rest of the year, so if we think about that sort of normalizing going forward for your gloves business, is the margin similar to the rest of PP&E? Is it higher? Is it lower? How should we think about that longer term? Andy Long: Yes. We really have not talked about within PPE or within Global Products, even specifically, any commentary on margin profiles of specific categories or product lines within Global Products. Kevin Caliendo: Well, okay. If I’m to say the pull-through was 75% this quarter, the rest of the year, is it breakeven? Is it still positive to your expectation? Like any sort of help to try to think about that part of the business so we can kind of back into it. But I think we’ve all kind of done the PP&E pull-through on margin in the past and tried to figure out sort of what it’s been. I’m just wondering if gloves – if you think that glove would be typical for the rest of PP&E. Not giving us numbers, but is it – would it be higher margin, do you think or lower margin than what you’re seeing with the rest of your PP&E business? Andy Long: Yes. I would say really, the only thing I could point to, to help you out here would be that the pull-through sequentially Q4 to Q1 in Global Products was higher than normal. And I’d say that’s largely attributable to the dynamic we just described. And then I would look to the full year gross margin guidance, knowing that probably the big fluctuation is going to happen in our Global Products segment as opposed to the Global Solutions side. Ed Pesicka: And I think over time, it’s been all balanced out too. Andy Long: Over long periods of time, that dynamic should even out. Ed Pesicka: And even in light of that, that’s – we’re still extremely comfortable and confident in our new range that we put out there, even in light of that balancing of it out in the back half. Kevin Caliendo: No. That’s helpful. Appreciate it. Thanks so much, guys. Operator: Thank you. And I show our last question, comes from the line of Michael Minchak from JPMorgan. Please go ahead. Michael Minchak: Yes. Good morning and thanks for taking the questions. So just putting aside the unique dynamics with respect to the exam gloves, can you talk about what you’re seeing with respect to current pricing trends in the spot market for other PPE categories? Do you still see prices elevated relative to historical levels? And I guess once supply demand does begin to normalize, what are your assumptions around where we could ultimately see spot pricing go relative to pre pandemic levels? Just trying to better understand the dynamics at play there? Ed Pesicka: Yes. So we see spot pricing continuing to be fluid. And we talked about this in the fourth quarter – about in the fourth quarter. We do see spot pricing coming down from the peak of pandemic but we still are – our pricing, because we have contractual relationships with our customers are below spot pricing, spot by pricing, which is what we’ve tried to live through the processes, whatever contract pricing we have, we’re going to honor that versus going out and adjusting based on spot price. So we are seeing them come down. We did see gloves go up drastically. We’re starting to see that balance out. And again, gloves is probably the exception right now, the outlier on that. But we would anticipate it to continue to adjust as we go forward. But again, I think what’s critical is we think the usage in the demand for PPE will remain much higher than it was before. This business was profitable at pre pandemic pricing, and it will continue to be profitable post pandemic and post pandemic pricing, which we expect, obviously, demand to be much higher than it was before, which enables us to get significant throughput and leverage in our manufacturing facilities. Michael Minchak: Got it. That’s helpful. And then maybe just a quick question around GPO contract renewals. Can you talk about how you see those sort of playing out and how that impacts your results, I guess, maybe relative to what you’ve seen in the past around those renewals? Ed Pesicka: Yes. So we recently renewed Vizient. That’s a 2-year renewal. We’re continuing to work with two other key GPOs, Health Trust and Premier. And look, we’ve got great relationships with them. I think during the pandemic we’ve really strengthened that relationship. We did everything we could to help all of their members. We expect to continue to work with them and move forward. Michael Minchak: Got it. Thanks for the comments. Operator: Thank you. That concludes our Q&A session. At this time, I’d like to turn the call back over to Mr. Ed Pesicka, President and CEO, for closing remarks. Ed Pesicka: Well, let me first start by thanking everyone for joining us on the call today. Let me also add a comment that I would like to thank all the Owens & Minor teammates who I really had the privilege to work with side-by-side over the last 2 years and the amount of effort and work that our teammates have done to go out and support the cause to fight this COVID-19 side-by-side. And I would be remiss not to thank the frontline workers who have basically done everything they possibly could over the last 14 to 15 months in this battle. I’ll close by adding this, pleased with what the way Q1 started and the year that really Q1 was and the year started, but we still have a lot of year left in front of us and a lot of hard work ahead of us, which we expect to continue to be successful as we move forward. And then lastly, close with, hopefully, we will hope to see everyone May 26 – or virtually see everyone May 26, when we’re going to do a deeper dive into Owens & Minor and how do we ignite growth into the future. So thank you. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.OMI Ratings Summary
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Related Analysis
Owens & Minor, Inc. (NYSE:OMI) Earnings Preview: A Mixed Outlook
Owens & Minor, Inc. (NYSE:OMI) is a healthcare logistics company that provides supply chain services to healthcare providers and manufacturers. The company is set to release its quarterly earnings on February 28, 2025.
Wall Street estimates the earnings per share to be $0.53, with projected revenue of approximately $2.68 billion. According to Zacks Investment Research, OMI is expected to surpass these earnings estimates. Despite this optimism, the market anticipates a year-over-year decline in earnings, even though revenues are expected to be higher for the quarter ending December 2024.
This mixed outlook could influence the stock price significantly. OMI's financial metrics reveal some challenges. The company has a negative price-to-earnings (P/E) ratio of -10.90, indicating current losses. The price-to-sales ratio is low at 0.05, suggesting the stock is valued at a fraction of its sales. These figures highlight the company's current financial difficulties.
The enterprise value to sales ratio is 0.25, reflecting OMI's valuation relative to its revenue. Additionally, the enterprise value to operating cash flow ratio is 13.15, providing insight into the company's cash flow generation. The negative earnings yield of -9.17% further underscores the financial challenges OMI faces.
OMI's debt-to-equity ratio stands at 2.48, indicating a higher level of debt compared to equity. However, the current ratio of 1.09 suggests that the company has slightly more current assets than current liabilities, offering some short-term financial stability. The upcoming earnings call will be crucial in assessing the sustainability of any immediate price changes and future earnings expectations.
Owens & Minor, Inc. (NYSE:OMI) Earnings Preview: A Mixed Outlook
Owens & Minor, Inc. (NYSE:OMI) is a healthcare logistics company that provides supply chain services to healthcare providers and manufacturers. The company is set to release its quarterly earnings on February 28, 2025.
Wall Street estimates the earnings per share to be $0.53, with projected revenue of approximately $2.68 billion. According to Zacks Investment Research, OMI is expected to surpass these earnings estimates. Despite this optimism, the market anticipates a year-over-year decline in earnings, even though revenues are expected to be higher for the quarter ending December 2024.
This mixed outlook could influence the stock price significantly. OMI's financial metrics reveal some challenges. The company has a negative price-to-earnings (P/E) ratio of -10.90, indicating current losses. The price-to-sales ratio is low at 0.05, suggesting the stock is valued at a fraction of its sales. These figures highlight the company's current financial difficulties.
The enterprise value to sales ratio is 0.25, reflecting OMI's valuation relative to its revenue. Additionally, the enterprise value to operating cash flow ratio is 13.15, providing insight into the company's cash flow generation. The negative earnings yield of -9.17% further underscores the financial challenges OMI faces.
OMI's debt-to-equity ratio stands at 2.48, indicating a higher level of debt compared to equity. However, the current ratio of 1.09 suggests that the company has slightly more current assets than current liabilities, offering some short-term financial stability. The upcoming earnings call will be crucial in assessing the sustainability of any immediate price changes and future earnings expectations.
