Morningstar | Owens & Minor Saw Mixed Results With Transformation Headwinds; Our Fair Value Estimate Is Unchanged
Owens & Minor reported mixed quarterly results, and we maintain our $8.70 fair value estimate and no moat rating. Despite better-than-expected revenue, one-time severance-related expenses of $7.3 million and customer service challenges caused EPS to fall $0.05 short of consensus expectations and roughly $0.03 short of our internal expectations. The management team will continue to assess the portfolio and consider potential asset securitizations ($150 million allocation included in the amended credit agreement) to align with the broader transformation.Shares were down roughly 18% intraday, which seems appropriate given the slower-than-expected turnaround. Overall, O&M's results reinforce our belief that the firm is poorly positioned to navigate in an environment with increasing competitive pressures. The firm's sub-scale size and raggedy execution leave O&M vulnerable to larger competitors.
We maintain our fiscal 2019 EPS of $0.71, as the company stabilizes the distribution business, which is within the lowered guidance range of $0.60 to $0.75.
For the fiscal fourth-quarter, revenue grew 6% year over year to $2.5 billion, solely attributable to the surgical and infection prevention business acquired in May (Halyard Products). Normalized EPS declined 75% year over year to $0.09, largely due to the one-time severance related charge (or $0.12 per share) and transformation headwinds.
Owens & Minor is a healthcare solutions company. The company provides products and services to healthcare provider, manufacturers and directly to patients across the continuum of care. The company has two segments: Global Solutions, which provides a portfolio of medical and surgical supplies and service offerings to healthcare providers including supplier management, analytics, inventory management, and clinical supply management; and Global Products, which manufactures and sources medical surgical products through its production and kitting operations as well as provides medical supplies and solutions for the prevention of healthcare-associated infections across the acute and alternate site channels.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
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