By James McNair
Enquirer staff writer

COVINGTON - Omnicare Inc., the nation's largest supplier of drugs to nursing home patients, reported disappointing second-quarter financial results Monday and lowered its profit projection for the rest of the year. That prompted stockholders to dump their shares for a one-day loss of $931 million in market value.

The Fortune 500 company had led analysts to believe it would report earnings of about 63 cents a share. It posted net income of $60.5 million, a jump of 39 percent from the same period last year, but on a per-share basis, the profit came to 44 cents, or 30 percent less than the forecast of analysts polled by Thomson Financial.

A revised profit outlook gave further impetus to the stock sell-off. In February, Omnicare said it expected full-year earnings-per-share range of $2.55 to $2.65. On Monday, it lowered its target to the $2.35 to $2.45 range.

Investors made for the exits and traded a door-crashing 16.5 million shares Monday, or 22 times its average daily volume of 737,100 shares. The stock plunged to a 15-month low of $25.05, down 34 percent from its Friday close, before settling at $29.33, down $8.87, or 23 percent.

"Let there be no mistake," said Omnicare CEO Joel Gemunder in a conference call Monday. "We are not pleased with these results."

The bad news overshadowed what appeared to be a strong second quarter for Omnicare. The company's sales rose 20 percent to a record $1 billion. Its primary business segment, that of pharmaceuticals sales to nursing homes, surged 22 percent to $977 million.

But pricing pressure from competitors and from state Medicaid programs ate substantially into Omnicare's profit margins, eroding its cash flow by 42 percent during the second quarter.

Gemunder said the company is "realigning" operating costs with the price environment, mainly through streamlining and productivity programs. A spokesman said Omnicare might reduce its field staff, but has no plans to cut jobs at its 340-employee headquarters.

"Up to this point, we have been able to absorb the impact through economies of scale or synergies we have generated from our acquisitions, increased margins on generic drugs and increased occupancy and acuity," Gemunder said.

"The underlying fundamentals of our business are solid, and the company's strategy is sound," he added. "The way we look at it is, we have hit a rough patch, the type of which we have managed through before."

Omnicare said the earnings setback would not affect the company's proposed $1.3 billion hostile tender offer for the shares of rival NeighborCare. Omnicare's all-cash offer of $30 per share expires Friday.

NeighborCare's shares had traded around the $30 mark since Omnicare announced its bid May 24. Monday's news at Omnicare, however, caused NeighborCare shares to shed $3.26 and close at $25.99, its lowest price since Omnicare made its advance.

Buckingham Research Group of New York City adjusted its rating of Omnicare shares twice Monday. It first downgraded the stock to "neutral." Then, after Omnicare shares hit $26, it upgraded it to "accumulate" in the belief that the stock was excessively punished.

Frank Morgan, an analyst with Jefferies & Co. in Nashville, said the earnings drop shocked Omnicare investors.

"I'd say that the volatility you saw today reflects the belief that it came as such a surprise to most people on Wall Street," Morgan said. "Medicaid pricing has always been a source of concern for the sector. Perhaps many investors were lulled to sleep."

---

E-mail jmcnair@enquirer.com