Owens & Minor reported a notable increase in first-quarter earnings, allowing the company to beat analyst expectations despite the impending loss of of a major customer.
The medical-surgical distributor reported $24.1 million in profits during the three months ended March 31, up 27% from the same period the year before, as the company reduces costs through layoffs and other actions. Revenue was $2.5 billion, up 2.7% from the year before, benefiting from an extra selling day during the leap year.
Richmond, Va.-based O&M recently announced that it had lost Oakland, Calif.-based Kaiser Permanente, which chose not to renew its $250 million contract and instead signed with rival Cardinal Health. Officials said Wednesday that Kaiser had a 15-year contract and that the loss is expected to cut annual earnings by 20 cents to 25 cents per share.
CEO Cody Phipps, who was appointed last summer, expressed doubt as to whether O&M “put our best foot forward” in Kaiser's bidding process. Phipps said he sees the Kaiser exit as a “one-customer issue," but this isn't the first time the company has reported a major contract loss in the last year.
Kaiser's business represents 5.4% of O&M's overall revenue and 5.6% of its domestic revenue. Because the system's needs are so complex, Phipps said he expects O&M will continue to handle Kaiser's business through 2016, therefore most of the financial impact will come in 2017.
The company has recently gone through a number of leadership changes and shifts in organizational structure and has decided to now report its financials in three segments: domestic, international, and clinical and procedural solutions, representing three newly distinct business units.
In the first quarter, domestic revenue was $2.3 million, up 3% from the same period the prior year, The company attributes that to success with large customers. Hoping to rebound from the Kaiser loss, Phipps said sales teams are already looking for potential areas of new growth.
Results from the international segment—which includes European customers that make up less than 4% of the company's business—reflect another customer exit from a U.K.-based provider that was initially reported last year, as well as being hit by unfavorable foreign currency exchange rates. International revenue was $83.6 million, down 12% from the year before.
The clinical and procedural solutions segment—a slightly larger segment that includes surgical and procedural kits and sourcing—saw revenue of $141.4 million, up 9% from the year before.
O&M expects adjusted earnings per diluted share of $2 to $2.05 this fiscal year, the company said.