Owens & Minor’s Strategic Shift: Earnings Call Insights

Owens & Minor ((OMI)) has held its Q3 earnings call. Read on for the main highlights of the call.

Owens & Minor’s recent earnings call was a blend of optimism and caution, reflecting strategic shifts and ongoing challenges. The company announced significant changes, including a major divestiture and a renewed focus on home-based care, which are anticipated to drive future growth. While there were positive developments such as growth in key segments and improved free cash flow, the company also faces hurdles like a decline in adjusted EBITDA and operational issues in its Products & Healthcare Services (P&HS) segment.

Divestiture Agreement with Platinum Equity

Owens & Minor has entered into a definitive agreement to sell its Products & Healthcare Services segment to Platinum Equity. This move allows the company to retain an equity interest, leveraging Platinum’s operational expertise to optimize the segment’s performance. This strategic divestiture is aimed at refocusing the company’s efforts on more profitable areas.

Focus on Home-Based Care

The company is rebranding to concentrate exclusively on the Patient Direct business, which is expected to yield improved and consistent cash flow. This strategic shift underscores Owens & Minor’s commitment to enhancing its presence in the home-based care market, a sector with significant growth potential.

Growth in Key Categories

Owens & Minor reported year-over-year growth in its sleep therapy, ostomy, and urology segments. The company’s revenue for the third quarter reached $697 million, up from $687 million the previous year, indicating robust performance in these key areas.

Improved Free Cash Flow

The company generated $28 million in free cash flow from continuing operations in the third quarter, contributing to a total of $78 million for the first nine months. This improvement in cash flow is a positive indicator of the company’s financial health and operational efficiency.

Adjusted EBITDA Decline

Despite positive developments, Owens & Minor experienced a decline in adjusted EBITDA, which fell to $92 million in the third quarter from $108 million the previous year. This decrease was partly due to a $6 million onetime benefit recorded in the previous year, highlighting the need for ongoing operational adjustments.

Challenges with P&HS Segment

The P&HS segment faced temporary inventory imbalances due to start-up issues at a new kitting facility, negatively impacting cash flow. Addressing these operational challenges is crucial for stabilizing the segment’s performance.

Large Customer Loss

Owens & Minor anticipates a significant customer loss in continuing operations, expected to impact the full year of 2026. However, the company remains optimistic that this will not significantly affect profitability due to the low-margin nature of the contract.

Forward-Looking Guidance

For the full year, Owens & Minor projects revenue between $2.76 billion and $2.82 billion, with adjusted net income ranging from $1.02 to $1.07 per share and adjusted EBITDA between $376 million and $382 million. The company is prioritizing debt repayment to enhance financial flexibility and plans to invest in technology and automation to optimize cost efficiency and customer experience. Despite the upcoming loss of a large customer contract, the company anticipates a stable free cash flow trend into 2026.

In summary, Owens & Minor’s earnings call reflects a company in transition, balancing strategic shifts with operational challenges. The divestiture and focus on home-based care are poised to drive future growth, while improvements in free cash flow and key segment growth provide a solid foundation. However, the decline in adjusted EBITDA and challenges in the P&HS segment highlight areas needing attention. The company’s forward-looking guidance suggests cautious optimism, with strategic investments aimed at enhancing efficiency and financial stability.