Lincare Holdings (LNCR), a leading provider of oxygen and respiratory therapies, reported first-quarter fiscal 2011 earnings per share of 49 cents, matching the Zacks Consensus Estimate while surpassing the year-ago earnings of 45 cents. Profit jumped 6.3% year over year to $46.4 million owing to higher sales.
Revenues rose 5.2% year over year to $431.6 million, but trailed the Zacks Consensus Estimate of $433 million. Sales include an unfavorable impact of $16.7 million associated with Medicare payment changes.
Operating income climbed roughly 4.7% year over year to $84.6 million with operating margin edging down to 19.6% from 19.7% a year ago. Consolidated cost and expenses rose 5.4% year over year to $346.9 million.
Lincare generated $81.3 million (down 7.5% year over year) in cash from operations during the quarter and spent $24 million and $20.6 million in net capital expenditures and business acquisitions, respectively. Cash and investments rose 27% year over year to $173.6 million while total long-term debt increased 3% to $509.2 million.
Florida-based Lincare is one of the leading providers of oxygen and other respiratory therapy services to patients at home. The company offers services and equipment to more than 785,000 customers across the U.S. through 1,090 local centers. Lincare remains committed to boosting sales through its leadership in respiratory therapy services and expansion of product range.
Lincare derives a major portion of its revenue from government sources and is therefore vulnerable to reimbursement rate cuts. Centers for Medicare and Medicaid Services (“CMS”) has launched a new “Competitive Bidding Program” for items of durable medical equipment (“DME”) including home oxygen. The bidding is aimed at determining the reimbursement rates offered by Medicare for DME in these markets.
The CMS released, on November 3, 2010, the list of suppliers who have signed contracts with the Medicare program to offer certain medical equipment and supplies to beneficiaries in nine metropolitan markets (Round 1) across the U.S. under the competitive bidding program. Lincare was awarded contracts in two of these nine markets, Charlotte and Miami.
The Round 1 bidding resulted in a 32% rate cut for Lincare’s core oxygen equipment product line. The program is expected to be implemented in an additional 91 markets (Round 2) beginning in 2013. The implementation of Round 2 may result in sharp rate cuts for Lincare.
Lincare is well placed to be a winner in the home oxygen space in the long run. However, the CMS bidding program represents a major headwind for the company as it will substantially affect its oxygen business resulting from the cap on reimbursement rates.
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