At the beginning of the millennium, Omnicare (NYSE:OCR) provided pharmacy services to just 636,500 beds in nursing homes and extended-care facilities across the U.S. "Beds" is a corporate-speak measure meaning "people and clients who occupy the beds." By 2007, the omnipresent pharmacy services company was sending medication daily to 1.4 million nursing home residents -- an amazing doubling of patients served. Revenue has risen from $1.9 billion to $6.5 billion in just six years. But 2006 was a step backward for the company as it struggled to integrate acquisitions and adapt to the new Medicare Part D prescription plan.

Omnivorous Omnicare
Omnicare used acquisitions to get to where it is today. The company gobbled up more than 100 other businesses -- everything from mom 'n' pop pharmacies to its biggest acquisition, NeighborCare, in 2005. This ravenous appetite has made Omnicare a dominant player.

NeighborCare brought nearly 32% growth in number of beds served, and in its first full year, the combined operation grew revenue 22.7%. But as we scroll down through the yearly returns to the bottom line, growth disappears and margins shrink.

Ominous addendums
Here are the growth figures and margins for the last two years.

Growth in

2006

2005

Revenue

22.7%

28.5%

Operating income

(8.0%)

18.1%

Net income

(18.8%)

(4.2%)

Diluted EPS

(28.6%)

(3.3%)

2006

2005

Gross margin

24.6%

24.5%

Operating margin

7.4%

9.9%

Net margin

2.8%

4.3%
Source: SEC documents.

What happened after the biggest acquisition in Omnicare's history and promising growth in revenue? It's in the footnotes:

  • Restructuring charges of $29.6 million
  • A special charge for retaining NeighborCare employees of $6.1 million
  • $125.1 million in litigation costs
  • Product recall and fire damage expenses of $$33.7 million

I could go on, but you get the idea -- a million here, a million there, and suddenly you're talking about real money. Growth takes a left turn into declining numbers.

Omniscient outlook
While fiscal year 2006 got ugly as we went from revenue all the way to the bottom line, looking ahead, 2007 offers a hint of improving earnings.

2005

2006

2007 (Est.)

Diluted earnings per share

$2.10

$1.50

$2.95-$2.98

Growth

--

(28.5%)

97%-99%


This growth supposes that there are no more charges, which is unlikely. However, look for 2007 to be a distinct improvement over 2006. Omnicare reports diluted earnings sans charges for 2006 at $2.68, which would give an 11% growth rate if analysts' estimates hold.

Omnicare's management saw 2006 as a difficult year of transition. Initiating the Medicare Part D program, integrating NeighborCare, and costs involved in shuttering a repackaging plant took their toll on earnings. The outlook for 2007 is decidedly more upbeat as the company looks to consolidate costs, reduce debt, and, of course, go shopping.

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Fool contributor Jean Graham owns no shares of Omnicare. The Fool has a disclosure policy.