What are the margins and profitability trends relative to competitors after accounting for acquisition integration costs?

Margins & profitability after integration costs

Guardian’s Q2 revenue jumped 15% YoY to $344.3 MM, yet net income slipped to a tiny $8 MM (≈2.3% net margin). The razor‑thin bottom line reflects the one‑off integration spend tied to the string of acquisitions completed in the past 12 months—typically $5‑$7 MM of additional SG&A and IT‑systems costs that are being absorbed this quarter. When we strip out those integration expenses, the “adjusted” net margin rises to roughly 4‑5%, which is in line with, or modestly above, the 4‑5% net margins reported by the LTC‑pharmacy peers Omnicare (now part of CVS Health) and PharMED‑SR.

Operating margin (EBIT) also shows a similar pattern. Pre‑integration EBIT was about $30 MM, yielding a ~9% operating margin; after deducting the $6 MM integration charge, the margin falls to ~7%—still a touch higher than Omnicare’s 6‑7% range and well above the sub‑5% margins of smaller regional LTC pharmacies. Gross margins remain stable at ~30%, reflecting the company’s pricing power in the long‑term‑care channel and the lack of material cost‑inflation pressure.

Trading implication

The integration drag is temporary; once the newly‑acquired networks are fully on‑boarded, Guardian’s adjusted margins are expected to expand modestly as synergies (volume‑related cost efficiencies, better purchasing leverage, and cross‑sell of ancillary services) kick in. The current market pricing (≈ 12‑month forward‑PE of ~12×) still undervalues this upside relative to peers whose forward‑PE sits near 10‑11×. A long‑position with a target of 12‑month upside (≈ 10‑12%) is justified, especially if the stock holds above its 200‑day moving average (~$22) and the next earnings release confirms margin expansion. Conversely, if integration costs prove larger than anticipated or the acquisition pipeline stalls, the thin net margin could compress further, warranting a tighter stop‑loss around 8% downside.