Wheels Off at Omnicare

Omnicare (OCR) found plenty of words to describe a lousy quarter that rendered some investors speechless.

CEO Joel Gemunder kicked off Tuesday's conference call by reminding investors that he had promised, early on, that 2006 would prove to be a transitional year -- and quickly adding that the year had so far "certainly lived up to that billing and more."

The company has struggled through major reimbursement changes, due to the implementation of Medicare Part D, as it tries to capitalize on its biggest acquisition ever. Problems at a drug repackaging facility, shut down because of quality control issues, have made matters even worse. Shares plunged 12% Tuesday to a 52-week low.

Still, Gemunder said on Tuesday that he feels "proud that we kept the wheels on the metaphoric wagon."

The ride has been awfully rough, however. The company saw its third-quarter sales pressured by falling bed counts, competitive pricing and prior-year Medicaid reductions. High payroll, needed to cover Part D and repackaging overruns, hit the bottom-line hard as well.

Indeed, the plant shutdown caused labor costs to rise - rather than fall with expected merger-related synergies - as employees took on more duties in the latest quarter.

"It became extremely difficult to try to remove what we call excess labor because the cascade effect happens when you have something like this," Gemunder tried to explain. "In other words, it takes longer to get bingo cards processed internally."

Now, Omnicare has no clear idea when its repacking system will return to normal.