Leading provider of oxygen and respiratory therapies Lincare Holdings (LNCR) reported a strong second quarter after the closing bell on Monday. Earnings per share of 47 cents beat the Zacks Consensus Estimate by a penny, while increasing from 33 cents a year-ago.
Net income surged 38.7% year-over-year to $46.4 million on the back of higher sales. Revenues climbed 10% year-over-year to $418.4 million. Earnings and revenues in the year-ago quarter were dented by Medicare reimbursement rate cuts.
Operating income leapt 35.8% year-over-year to $85.2 million with operating margin increasing to 20.4% from 16.5% a year ago, helped by revenue growth and the company’s effective cost management.
Lincare generated $142 million (down 4.8% year-over-year) in cash from operation during first-half 2010 and spent $54.9 million and $11.3 million in net capital expenditures and business acquisitions, respectively. Cash and investments nearly doubled year-over-year to $125.1 million while total long-term debt increased 4.4% to $495.7 million. Lincare bought back 1.6 million shares during the first-half for $50 million.
Lincare has not released its guidance for the third quarter but expects reimburse rate cuts by the Centers for Medicare and Medicaid Services (CMS) for inhalation drugs to trim quarterly revenues by roughly $7 million.
The CMS has launched a new Competitive Bidding Program for items of durable medical equipment (DME) including home oxygen in nine metropolitan markets effective 2011. The bidding is aimed at determining the reimbursement rates offered by Medicare for DME in these markets. This replaces Medicare’s current fee schedule with market-based rates.
The recently announced first-round bidding results by the CMS indicates a 32% rate cut for Lincare’s core oxygen equipment product line in nine markets. The company has argued that the pricing mechanism adopted by regulators for determining reimburse rates for oxygen equipment is fundamentally flawed and may result in poor patient care.
The bidding program restricts access to DME items for Medicare beneficiaries to a limited number of providers that are selected by the CMS based on the minimum bid prices. Lincare has submitted bids in nine markets and offered contracts to provide oxygen equipment in two of the nine markets (Charlotte and Miami) at rates higher than those set by the CMS.
The company has appealed to the CMS to make certain changes prior to extending the bidding in other markets to ensure more protection for patients. The CMS bidding program represents a major headwind for Lincare which will substantially affect the company’s oxygen business resulting from the cap on reimbursement rates.
Florida-based Lincare is one of the leading providers of oxygen and other respiratory therapy services to patients at home. It offers services for chronic obstructive pulmonary disease (COPD), emphysema, chronic bronchitis or asthma, supplemental oxygen, and other respiratory therapy services. Lincare provides services and equipment to nearly 750,000 customers across the U.S through 1,081 local centers.
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