Omnicare: Sounds Like Management Was Caught with Its Pants Down

Omnicare (OCR) laid an egg on Friday and announced disappointing Q1 results. Earnings per share are down. Net profits are down and revenues are down. Naturally, the investor is down and the stock took a beating on Friday. Short term options traders prepared to feast on the September 07 35 and 32.5 puts as they bid up the prices on unusually higher volume. Where there is smoke, there is fire and perhaps the bet is more bad news to come.

Joel F. Gemunder, Omnicare's president and chief executive officer made the usual comments that they are on the job and have strategies in place to fix the problem. At the same time, he also said 2007 would be a rebuilding year. There was an admission that Q1 was short of expectations. It sounded like management was caught with their pants down.

The very same Joel F. Gemunder also had a direct non open market disposition on March 23 of 27,280 shares at valuations around $40.59 for a total value of approximately $1,100,000. Actually on March 23, there was an entire stampede of officers and directors selling shares that had been exercised or granted the day before.

The stampede was led by Mr. Gemunder. I am sure that it has the necessary veil of supposed good governance and pre-approved programs, etc. It appears that the insiders are selling every chance they get. Put activity continues to suggest bad news. Management insists that they were completely surprised. The bad news is mainly attributed to a margin squeeze on their generics and suddenly increased labor costs.

These two costs have constant management reports, and the “we are surprised” explanation does not hold. Management is not to be believed here. They can see these problems from internal reports, if they decide to look at them. Given the very dubious explanation, it's time to replace management with more credible executives. Will the board do its job and represent shareholders?

OCR 1-yr chart: