Hill-Rom Reports First Quarter Revenue Growth of 3.0 Percent to $352 Million and Earnings Per Fully Diluted Share From Continuing Operations of $0.23, an Increase of 15.0 Percent From the Prior Year
Posted on: Wednesday, 4 February 2009, 16:49 CST
BATESVILLE, Ind., Feb. 4 /PRNewswire-FirstCall/ -- Hill-Rom Holdings, Inc.
(NYSE: HRC), announced unaudited financial results for its fiscal first
quarter ended December 31, 2008. Results included revenue of $351.6 million,
a $10.2 million or 3.0 percent increase from $341.4 million in the prior year
comparable period. On a constant currency basis, revenue increased 5.9
percent. Net income from continuing operations was $14.2 million, or $0.23
per fully diluted share--an increase of 15.0 percent. Adjusted earnings per
fully diluted share from continuing operations were $0.25, an increase of 13.6
percent from the prior year. Adjustments experienced in the current year
include the effects of lower Liko margins associated with the valuation of
acquired inventories and Liko integration costs. Adjustments in the prior
year include costs associated with the planned spin-off of the funeral
services business and special charges. Unless otherwise indicated, amounts in
the current quarter include the results of Liko, acquired on October 1, 2008.
Management Comments
"As we reported last month, U.S. hospital customers made significant and
rapid reductions of capital spending during the last half of the quarter on a
wide variety of medical technologies, including ours. Because of our diverse
portfolio, rental alternatives, the relative strength of our international
business and the acquisition of Liko, we were better able to weather the storm
in the first quarter," commented Peter H. Soderberg, president and CEO of
Hill-Rom. "As we look forward, we believe U.S. hospitals will continue to
reduce or postpone capital purchases as they respond to the effects of the
economy on their operations; further, we anticipate that during the second
half of the year we might begin to see signs in Europe of softening capital
expenditures. All this has led us to update our guidance and present a more
cautious outlook for the rest of 2009."
Soderberg continued, "During these difficult times, however, we remain
committed to implementing our multi-year strategy that calls for continued
investments in new product development, global strengthening of our field
sales and clinical support team, supply chain efficiencies and continuous
improvement to expand our operating margins. Reflecting our cost control
actions, operating expenses declined 3.6 percent after excluding $7.9 million
of Liko operating costs."
Commenting on the integration of Liko operations, Soderberg stated, "Liko
posted sales of $18.4 million, in line with expectations. Our customers are
responding well to this latest addition to our patient safety solutions
portfolio in the area of safe lifting and mobilization."
Other first quarter revenue highlights regarding Hill-Rom business
segments include:
-- North America Acute Care. Hill-Rom North America Acute Care revenue
declined $7.8 million, or 3.7 percent, to $203.5 million. Capital sales
decreased 8.3 percent, or $12.6 million, primarily driven by decreases in our
patient support systems and architectural products. Despite this negative
trend, healthcare information technology showed growth in excess of 20 percent
due to the recent launch of the all digital NaviCare (R) Nurse Call system.
Rental revenue increased by $4.8 million, or 8.3 percent, during the
quarter, due to higher volumes from new product fleet investments in bariatric
and wound care and the impact of strategic adjustments made to our sales
channel implemented over the last fiscal year.
-- International and Surgical. Hill-Rom International and Surgical
capital and rental revenue increased $15.4 million, or 18.4 percent, to $98.9
million, principally driven by the acquisition of Liko and stronger
performance of capital sales in Europe and Latin America. Constant currency
growth was 28.0 percent, with approximately half related to the Liko
acquisition. Capital sales increased $16.4 million, or 23.7 percent, while
rental revenue declined by $1.0 million, or 7.2 percent.
-- North America Post-Acute Care. Hill-Rom North America Post-Acute Care
revenue increased $2.3 million, or 4.8 percent, to $50.4 million. Capital
sales revenue increased by $2.3 million, or 26.7 percent, primarily due to the
Liko acquisition, sales channel initiatives and new product sales. Rental
revenue was equivalent to the prior year at $39.5 million, with strong
respiratory and home care performance offset by continued softness in extended
care.
Other Fourth Quarter Financial and Operational Highlights
Gross Profit and Operating Expenses:
-- Hill-Rom gross profit was up slightly from the prior year to $152.5
million, although gross margin declined 110 basis points to 43.4 percent.
Capital gross profit declined by 3.8 percent, and gross margin was down 260
basis points versus the prior year due to the reduced volume of North America
acute patient support products along with higher growth of lower margin
International sales. Capital margins were also negatively impacted by $1.9
million related to the valuation of acquired Liko inventories and a union
ratification bonus of $0.9 million incurred in the quarter. Rental gross
profit grew by 6.8 percent and associated gross margin improved 180 basis
points, due primarily to increased revenue and cost improvement actions within
the field service network.
-- Operating expenses as a percent of sales declined 20 basis points to
36.8 percent. General and administrative expenses declined by upper-single-
digits, excluding Liko.
-- Cash flow from operations was $34.9 million for the first quarter.
Strong collections of our receivables were offset by increases in inventory
and the timing of liability payments. The increase in inventory was a direct
result of the impact of reduced demand for capital products.
-- Income tax expense in the first quarter reflects an effective rate of
32.4 percent compared to 39.8 percent in the prior year period. The lower
rate in the current year is related to the effect of more favorable foreign
tax rates and higher discrete income tax benefits, most notably related to the
retroactive reenactment of the research and development tax credit. The tax
rate excluding these discrete items would have been 38.6 percent in the
current period compared to 43.2 percent in the prior year.
Other:
-- On January 14, 2009, the company announced several cost savings actions
taken as part of its strategic plan as well as additional measures taken in
light of reduced sales volume of U.S. capital products. Actions taken
included: 1) Consolidation of certain manufacturing and selected back office
operations; 2) Redeployment of U.S. sales and service resources to increase
our customer presence and support; 3) Further reduction in non-sales, non-R&D
discretionary spending; 4) A voluntary early retirement program and 5)
Involuntary job eliminations to reflect lower capital equipment demand and
productivity improvements. It is anticipated that the eliminations and
operational consolidations will result in approximately $12 to $14 million in
annualized savings, about half of which is related to volume declines.
Further, the company expects to incur a special charge related primarily to
severance, early retirement benefits, and other personnel costs associated
with the consolidation of certain operations of approximately $7 to $10
million over the second and possibly third quarters. There also will be
additional special charges related to the impairment of assets, lease
terminations, and pension and health care plan costs associated with these
actions. These measures were implemented in addition to the previously
described streamlining actions taken in August 2008.
On March 31, 2008, Hill-Rom completed the spin-off of its funeral services
business operating under the Batesville Casket name. Accordingly, the results
of operations of the funeral services business, including certain separation
related costs and other income and expenses assigned to the funeral services
business, have been presented as discontinued operations for all periods
presented in the Condensed Consolidated Statements of Income.
Please see the attached schedules for additional information, including
reconciliations of earnings in accordance with U.S. generally accepted
accounting principles ("GAAP") to as adjusted income and earnings per share,
condensed financial information, summary balance sheet information and segment
sales summaries.
For a more complete review of Hill-Rom's results, please refer to our
Quarterly Report on Form 10-Q for the quarter ended December 31, 2008, which
will be filed later this week.
Financial Guidance Summary For 2009
Management is updating full year 2009 financial guidance initially
provided on October 7, 2008 in conjunction with Hill-Rom's investor
conference.
The fundamental change in our outlook relates to North America Acute Care
capital sales and the impact of foreign exchange rates. Since late November
the company has experienced a significant number of orders frozen due to
hospital capital constraints. There is considerable uncertainty as to the
depth and duration of future capital expenditure limitations; accordingly, the
company's revised guidance is based on an estimated year-over-year reduction
in North America Acute Care capital revenues of 15 to 30 percent. Our fiscal
year outlook for the rest of our businesses remains essentially unchanged.
Hill-Rom's consolidated revenue guidance range for fiscal 2009 is expected
to be $1.375 to $1.470 billion which represents a 2.5 to 8.8 percent reduction
versus prior year. Earnings per fully diluted share from continuing
operations are expected to be $0.66 to $1.05, with adjusted earnings per fully
diluted share expected to be $0.82 to $1.18. Financial guidance in tabular
format is included as an attachment.
Hill-Rom Holdings, Inc. provides earnings per share guidance on an
adjusted basis from continuing operations because the company's management
believes that the presentation provides useful information to investors. This
measure excludes strategic developments, undetermined special charges and the
impact of significant litigation. Such items may be highly variable, difficult
to predict and of a size that sometimes have substantial impact on the
company's reported operations for a period. Often, prospective quantification
of such items is not feasible. Management uses these measures internally for
planning, forecasting and evaluating the performance of the business,
including evaluating results relative to employee performance compensation
targets. Investors should consider non-GAAP measures in addition to, not as a
substitute for, or as superior to, measures of financial performance prepared
in accordance with GAAP.
Additional assumptions and discussion will be provided during the
Company's conference call to be held tomorrow morning. Information to access
the webcast is provided below.
Conference Call Replay and Webcast
The company will sponsor a conference call and webcast for the investing
public at 8 a.m. EST, 7 a.m. CST, on Thursday, February 5, 2009. The webcast
is available at http://ir.hill-rom.com/events.cfm or
http://ir.hill-rom.com/eventdetail.cfm?eventid=64491 and will be archived on
the company's website through February 4, 2010 for those who are unable to
listen to the live webcast. A replay of the call is also available through
February 12, 2009 at 888-203-1112 (719-457-0820 International). Code 7473680
is needed to access the replay.
ABOUT HILL-ROM HOLDINGS, INC.
Hill-Rom is a leading worldwide manufacturer and provider of medical
technologies and related services for the health care industry, including
patient support systems, safe mobility and handling solutions, non-invasive
therapeutic products for a variety of acute and chronic medical conditions,
medical equipment rentals and information technology solutions. Hill-Rom's
comprehensive product and service offerings are used by health care providers
across the health care continuum and around the world in hospitals, extended
care facilities and home care settings to enhance the safety and quality of
patient care.
Hill-Rom ... enhancing outcomes for patients and their caregivers.
www.hill-rom.com
Disclosure Regarding Forward-Looking Statements
Certain statements in this press release contain forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act
of 1995, regarding the Company's future plans, objectives, beliefs,
expectations, representations and projections. The Company has tried,
wherever possible, to identify these forward-looking statements using words
such as "intend," "anticipate," "believe," "plan," "encourage," "expect,"
"may," "goal," "become," "pursue," "estimate," "strategy," "will,"
"projection," "forecast," "continue," "accelerate," "promise," "increase,"
"higher," "lower," "reduce," "improve," "expand," "progress," "potential" or
the negative of those terms or other variations of them or by comparable
terminology. The absence of such terms, however, does not mean that the
statement is not forward-looking. It is important to note that forward-
looking statements are not guarantees of future performance, and the Company's
actual results could differ materially from those set forth in any forward-
looking statements. Factors that could cause actual results to differ from
forward-looking statements include but are not limited to: the Company's
dependence on its relationships with several large group purchasing
organizations, whether the Company's new products are successful in the
marketplace, changes in customers' Medicare reimbursements, collections of
accounts receivable, compliance with FDA regulations, antitrust litigation,
potential exposure to product liability or other claims, failure of the
Company's announced or future strategic initiatives and restructuring and
realignment activities to achieve expected growth, efficiencies or cost
reductions, disruptions in the Company's business or other adverse
consequences resulting from the recent spin-off of the funeral service
business, failure to realize the anticipated benefits of the spin-off, failure
of the Company to execute its acquisition and business alliance strategy
through the consummation and successful integration of acquisitions or entry
into joint ventures or other business alliances, increased costs or
unavailability of raw materials, adverse changes in global economic conditions
or disruptions of credit markets, labor disruptions, the ability to retain
executive officers and other key personnel, and certain tax-related matters.
For a more in depth discussion of these and other factors that could cause
actual results to differ from those contained in forward-looking statements,
see the discussions under the heading "Risk Factors" in the Company's Annual
Report on Form 10-K for the period ended September 30, 2008 and the Quarterly
Report on Form 10-Q for the quarter ended December 31, 2008, which will be
filed later this week. The Company assumes no obligation to update or revise
any forward-looking statements.
Hill-Rom Holdings, Inc.
Condensed Financial Information
Unaudited
(Dollars in millions except per share data)
Condensed Statement of
Earnings 1Q09 4Q08 3Q08 2Q08 1Q08
Net revenues
Capital sales $236.0 $309.3 $249.9 $255.3 $229.5
Rental revenues 115.6 115.0 116.9 119.9 111.9
Total revenues 351.6 424.3 366.8 375.2 341.4
Cost of revenues
Cost of goods sold 146.5 181.3 150.5 150.3 136.5
Rental expenses 52.6 53.4 55.7 57.6 52.9
Total cost of revenues 199.1 234.7 206.2 207.9 189.4
Gross profit
Capital sales 89.5 128.0 99.4 105.0 93.0
Rental revenues 63.0 61.6 61.2 62.3 59.0
Total gross profit 152.5 189.6 160.6 167.3 152.0
As a percentage of sales 43.4% 44.7% 43.8% 44.6% 44.5%
Operating expense 129.5 133.4 137.3 146.9 126.3
As a percentage of sales 36.8% 31.4% 37.4% 39.2% 37.0%
Special charges - (20.5) - - (2.3)
Operating profit 23.0 35.7 23.3 20.4 23.4
Other income/(expense), net (2.0) (2.9) (1.3) (3.5) (2.8)
Income tax expense (1) 6.8 9.0 0.5 7.5 8.2
Income from continuing
operations $14.2 $23.8 $21.5 $9.4 $12.4
Diluted earnings per share:
Earnings per share from
continuing operations $0.23 $0.38 $0.34 $0.15 $0.20
Average common shares
outstanding - diluted
(thousands) 62,808 62,734 62,655 62,566 62,403
Dividends per common share $0.1025 $0.1025 $0.1025 $0.2850 $0.2850
Consolidated Cash Flows from
Operations (2)
Cash flow from operations $34.9 $43.3 $23.0 $84.1 $120.1
Less: capital expenditures (13.6) (25.3) (20.6) (30.7) (26.0)
Consolidated free cash flow $21.3 $18.0 $2.4 $53.4 $94.1
Cash and cash equivalents $49.5 $221.7 $131.2 $145.9 $125.5
Investment securities (3) $38.1 $44.9 $46.2 $48.6 $164.3
Hill-Rom Capital Expenditures $13.6 $25.3 $20.6 $28.7 $23.7
Hill-Rom Depreciation &
Amortization $26.1 $28.1 $25.5 $25.5 $24.4
(1) For fiscal year 2008, discrete tax benefits totaled $8.3 million
($0.13 per share), $7.8 million ($0.12 per share) of which was
recognized in the third fiscal quarter, principally associated with
the release of valuation allowances on foreign tax credit
carryforwards and the recognition of certain previously unrecognized
tax benefits associated with recently completed tax audits. Discrete
tax benefits of $1.3 million were recognized in the first quarter of
fiscal 2009, most notably related to the retroactive reinstatement
of the research and development tax credit, compared to $0.7 million
in the prior year comparable period.
(2) Consolidated cash flow amounts are "as reported" and thus include
cash flows from the funeral services business through March 31,
2008.
(3) Beginning June 30, 2008, investment securities were classified as
long term assets on the balance sheet.
Consolidated Results - Highlights
Revenues - Constant Currency
($ In Millions) Q1 Y/Y Q1 Q1 Adj/
2009 Foreign 2009 2008 Actual
Actual Exchange Adjusted Actual % Change
Acute Care $203.5 $2.1 $205.6 $211.3 -2.7%
Post Acute Care 50.4 - 50.4 48.1 4.8%
International and Surgical 98.9 8.0 106.9 83.5 28.0%
Eliminations (1.2) - (1.2) (1.5) -20.0%
Total $351.6 $10.1 $361.7 $341.4 5.9%
Non-GAAP Financial Disclosures and Reconciliations
While Hill-Rom reports financial results in accordance with U.S. GAAP,
this press release includes non-GAAP measures. These non-GAAP measures are not
in accordance with, nor are they a substitute for, GAAP measures. Hill-Rom
uses the non-GAAP measures to evaluate and manage its operations and provides
the information to assist investors in performing financial analysis that is
consistent with financial models developed by research analysts. Investors
should consider non-GAAP measures in addition to, not as a substitute for, or
as superior to, measures of financial performance prepared in accordance with
GAAP.
Income from Income from
Continuing Continuing
Operations - 2009 Operations - 2008
Income Diluted Income Diluted
First Quarter Pre-tax Taxes EPS Pre-tax Taxes EPS
Income from continuing
operations - GAAP $21.0 $6.8 $0.23 $20.6 $8.2 $0.20
Adjustments:
Effect of Liko inventory
valuation 1.9 0.5 0.02 - - -
Liko acquisition
integration charges 0.3 0.1 - - - -
Special charges - - - 2.3 0.9 0.02
Separation costs - - - 0.1 - -
Income from continuing
operations - Adjusted $23.2 $7.4 $0.25 $23.0 $9.1 $0.22
Note: Certain per share amounts may not accurately add due to rounding.
Note: Earnings in the above presentation of adjusted income from
continuing operations have not been adjusted to remove the effects of discrete
period tax adjustments recognized in any of the periods presented. Discrete
period tax adjustments are routinely recognized throughout any given year
under a variety of circumstances and are highly subjective in nature. In the
first quarter of fiscal 2009, discrete tax benefits totaled $1.3 million
compared to $0.7 million in the prior year comparable period.
Selected Summary Balance Sheet Schedule
12/31/2008 9/30/2008
Assets
Current Assets
Cash and cash equivalents $49.5 $221.7
Trade accounts receivable, net of
allowances 348.8 395.1
Inventories 127.3 100.0
Other current assets 50.1 55.5
Total current assets 575.7 772.3
Equipment leased to others, net 164.3 171.4
Property, net 124.9 125.4
Goodwill 539.1 422.5
Other assets 221.4 198.3
Total Assets $1,625.4 $1,689.9
Liabilities
Current Liabilities
Trade accounts payable $80.7 $99.4
Short-term borrowings 122.0 122.6
Other current liabilities 144.3 172.7
Total current liabilities 347.0 394.7
Long-term debt 100.8 100.2
Other long-term liabilities 115.4 112.4
Total Liabilities 563.2 607.3
Shareholders' Equity 1,062.2 1,082.6
Total Liabilities and Shareholders'
Equity $1,625.4 $1,689.9
Financial Guidance for Fiscal Year 2009
Actual 2009 Range
($ in millions, except EPS) 2008 Low High
Net Revenues
Capital sales $1,044 $905 $986
Rental revenues 464 470 484
Total revenues 1,508 1,375 1,470
YoY % Change 11.1% -8.8% -2.5%
Capital sales gross margin % 40.7% 40.3% 41.3%
Rental revenues gross margin % 52.6% 52.8% 53.5%
Total gross margin % 44.4% 44.6% 45.4%
Other operating expenses 537 531 550
Special charges and other items
(see below) 31 12 9
Operating Profit 103 70 108
Other income / (expense) (10) (8) (8)
Income from Continuing Operations
before Income Taxes 93 62 100
Tax Rate 27.3% 32.0% 34.0%
Income from Continuing Operations $67 $42 $66
Earnings per share - GAAP $1.07 $0.66 $1.05
Separation costs 0.02 - -
Special charges (1) 0.22 0.10 0.07
Stock modification charge 0.06 - -
Loss on extinguishment of debt 0.03 - -
Liko acquisition inventory step-up - 0.04 0.04
Liko acquisition integration
charges - 0.02 0.02
Earnings per share - Adjusted (2) $1.40 $0.82 $1.18
(1) Special charges in fiscal 2009 include the range of disclosed charges
associated with restructuring actions announced by us on January 14,
2009. This range does not include additional yet to be quantified
charges related to the impairment of assets, lease terminations and
pension and health care plan costs associated with these actions.
(2) Earnings per share - Adjusted in the above presentation have not been
adjusted to remove the effects of discrete period tax adjustments
recognized in any of the periods presented. Discrete period tax
adjustments are routinely recognized throughout any given year under
a variety of circumstances and are highly subjective in nature. For
fiscal year 2008, discrete tax benefits totaled $8.3 million ($0.13
per share), while year-to-date discrete tax benefits in fiscal 2009
totaled $1.3 million ($0.02 per share).
SOURCE Hill-Rom Holdings, Inc.
Source: PR Newswire
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