LNCR Lincare Holdings Inc. (MM)

Lincare Holdings Inc. (LNCR) reported its second quarter 2012 adjusted earnings per share of 56 cents, beating the Zacks Consensus Estimate by a penny and surpassing the year-ago earnings per share of 45 cents (up 24.4%). In the quarter, profit increased 11.9% to $47.9 million, led by higher sales.

Recently, the company announced its takeover by The Linde Group, a German gases and engineering company. Per the agreement, Linde agreed to buy all the outstanding shares of Lincare in cash for $41.50 per share or $4.6 billion.

The acquisition, subject to certain regulatory conditions along with shareholder approval, is expected to close by the third quarter of 2012. After the acquisition, Lincare will be incorporated into Linde as a fully-owned subsidiary.

Revenue

Revenues rose 10.5% year over year to $496.2 million, but missed the Zacks Consensus Estimate of $504 million. Year-over-year revenue growth can be attributed to acquisition and internal growth of roughly 11%, partially offset by a 0.5% negative impact of Medicare payment cuts amounting to $2.1 million.

Margins

Gross margin dropped to 67.7% in the reported quarter from 68.3% a year ago. Operating margin remained flat year over year at 17.8%. Selling, general and administrative charges, as a percentage of sales, were 18.1% compared with 19% in the prior-year quarter.  

Balance Sheet

Lincare ended the quarter with cash and short-term investments of $165.9 million, up 35.8% year over year. Total long-term debt (including current installments) was $803.8 million, up 50.9% year over year.

Florida-based Lincare is a leading provider of oxygen and other respiratory therapy services to patients at home. The company offers services and equipment to more than 800,000 clients across Canada and the U.S. through 1,058 local outlets.

Lincare successfully expanded its anti-coagulation monitoring franchise in the last one year with a 130% increase in the number of patients on service. It also plans to broaden its pulmonary rehabilitation business. The company remains committed to boosting sales through its leadership in respiratory therapy services and expansion of its product range. According to the company’s cost saving strategy, the company consolidated 50 operating centers during the first half of 2012 to enhance its operating efficiency.

However, the company derives a major portion of its revenue from government sources and is therefore vulnerable to reimbursement rate cuts. It competes with other players in the U.S. home health care market such as Gentiva Health Services Inc. (GTIV) and Rotech Healthcare Inc. (ROHI).

Lincare Holdings currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

 
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