Hill-Rom reports fourth quarter results : Full year revenue growth 11.1 percent
|Monday, 10 November 2008|
Hill-Rom Holdings, Inc., announced unaudited financial results for its fiscal fourth quarter ended September 30, 2008--the second quarter of operations following the separation of its former Batesville Casket unit. Results included revenue of $424.3 million, a $52.3 million or 14.1 percent increase from $372.0 million in the prior year comparable period. On a constant currency basis, revenue increased 12.9 percent. Net income from continuing operations was $23.8 million, or $0.38 per fully diluted share--a decline of 2.6 percent. This amount reflects fourth quarter special charges of $20.5 million (pre-tax), or $0.20 per share, related to previously announced streamlining initiatives and efforts to restore growth and improve profitability of our medical equipment management services ("MEMS") business. Adjusted earnings per fully diluted share from continuing operations were $0.58, an increase of 52.6 percent from the prior year.
For full-year fiscal 2008, revenues and earnings per fully diluted share from continuing operations were $1,507.7 million and $1.07, respectively, compared to $1,356.5 million and $1.13 for full-year fiscal 2007. The company's 11.1 percent revenue increase reflects balanced growth of both capital sales and rental revenue. On an as adjusted basis, fully diluted earnings per share from continuing operations for the full 2008 fiscal year were $1.40 compared to $1.13 per fully diluted share in 2007, an increase of 23.9 percent. Adjustments made in fiscal year 2008 were related to special charges, a stock modification charge, a loss on the extinguishment of debt, and other separation related costs. During fiscal year 2007, adjustments were related to anti-trust litigation, other special charges, and separation related costs.
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.
Peter H. Soderberg, president and CEO of Hill-Rom, commented, "Our performance this quarter reflects a strong finish to an important transitional year. Our selective investments in research and development, enhanced sales channels, and manufacturing efficiency are continuing to yield results across the care continuum and around the world. In spite of more pronounced inflationary pressures during the quarter, we saw 190 basis points of gross margin improvement in the year-over-year quarterly period, primarily due to improved rental margins."
"We anticipate that fiscal year 2009 will bring heightened economic challenges to our customers. While we have not yet experienced moderating customer demand as evidenced by our strong fourth quarter revenue, earnings, and backlog positions, our organic revenue expectations for 2009 reflect a decidedly more cautious outlook. While this lack of certainty is unsettling, Hill-Rom's compelling technology offerings and disciplined expense control should help mitigate the impact of economic headwinds," Soderberg continued.
"Our North America Acute Care segment revenue grew nearly nine percent, led by over 40 percent growth in our ICU patient support systems, and over 30 percent growth in our proprietary therapy support system capital and rental products. Our International and Surgical segment revenue once again showed strong growth of 23.0 percent (18.2 percent on a constant currency basis), reflecting continuing market share gains and a particularly strong mid-20 percent sales increase in Europe. Finally, our North America Post-Acute Care segment saw nearly 30 percent growth, reflecting double digit sales gains across all major product categories," Soderberg continued.
As previously disclosed, Hill-Rom recorded two special charges in the fourth quarter totaling $20.5 million (pre-tax) related to streamlining the organization and improving profitability in our MEMS business. Of this amount, $13.8 million will be non-cash in nature. Annual savings resulting from these specific actions are expected to approximate $18 million, most of which will impact 2009. These savings are reflected in financial guidance.
Commenting on the previously announced acquisition of Liko on October 1, 2008, Soderberg stated, "We have now operated Liko for nearly six weeks, and we continue to be very enthusiastic about the opportunities to enhance patient and caregiver outcomes through the combination of Liko with Hill-Rom. The acquisition, which is expected to be accretive in the first year, is highly consistent with our strategies to expand both our global footprint and presence across the care continuum."
"We are reaffirming financial guidance introduced at our investor conference early last month. Our outlook anticipates more conservative organic revenue growth reflecting moderation of some customers' purchasing patterns, recovery of credit markets occurring early in calendar 2009, and recessionary pressures continuing until mid-2009. Nevertheless, we expect margin expansion and productivity initiatives, combined with the accretive Liko acquisition, to produce meaningful operating income and earnings per share growth," Soderberg concluded.
Other fourth quarter revenue highlights regarding Hill-Rom business segments include:
-- North America Acute Care. Hill-Rom North America Acute Care revenue increased $21.9 million, or 8.7 percent, to $272.5 million. Capital sales increased 7.0 percent, or $14.0 million, due in part to strong customer reaction to our new TotalCare Connect™ ICU bed platform. Our healthcare information technology unit also showed good growth due to the September launch of its new, all digital Navicare ™ NurseCall system.
Rental revenue increased by $7.9 million, or 15.1 percent, during the quarter, due to sharply higher volumes from 2007 product launches in bariatric and wound care products, and the impact of strategic adjustments made to our sales channel implemented over the last fiscal year. Revenues also benefited from prior year rental receivable reserve adjustments which did not repeat in the current year, while lower MEMS revenues partially offset this favorability.
-- International and Surgical. Hill-Rom International and Surgical capital and rental revenue increased $19.3 million, or 23.0 percent, to $103.3 million, principally driven by strong performance in Europe, Asia, and Latin America. Capital sales increased $17.1 million, or 24.1 percent. Rental revenue was also higher by $2.2 million, or 17.1 percent. Our surgical unit, Allen Medical, recorded continued mid-teens growth driven primarily by the acceptance of new products.
-- North America Post-Acute Care. Hill-Rom North America Post-Acute Care revenue increased $11.5 million, or 29.6 percent, to $50.3 million. Capital sales revenue increased by $2.0 million, or 24.0 percent, primarily due to sales channel initiatives and new product sales. Rental revenue increased $9.5 million, or 31.1 percent, primarily related to increased activity associated with our home care rentals and respiratory care, and prior year rental receivable reserve adjustments which did not repeat in the current year.
Other Fourth Quarter Financial and Operational Highlights
Gross Profit and Operating Expenses:
-- Hill-Rom gross profit grew $30.2 million, or 18.9 percent. Rental gross profit grew by 37.5 percent and associated gross margin improved 660 basis points, due primarily to increased revenue, the leveraging of our field service network, and the impact of the prior year receivable reserve adjustments outlined above. Capital gross profit grew by 11.7 percent, and gross margin was flat versus the prior year as improvement in product mix on capital margins was offset by unfavorable geographic mix and inflationary pressures. Consolidated gross margin increased 190 basis points to 44.7 percent.
-- Operating expense growth moderated significantly and was considerably lower than sales growth. Operating expenses grew 6.1 percent or $7.7 million. Most of the expense growth was attributable to our strategic initiatives related to sales channel expansion and product launch spending (up 8.8 percent) offset by reductions or slower growth in other areas resulting from expense control initiatives.
-- On October 2, 2008, the Company announced the acquisition of Liko for approximately $183 million. Liko, based in Lulea, Sweden, is a leading supplier and developer of lifts and slings that facilitate the safe movement and transfer of patients around the world and across the care continuum. The acquisition is consistent with the previously disclosed strategy for growth and expansion via highly selective acquisitions. The transaction is expected to be slightly accretive to Hill-Rom's GAAP earnings per share in 2009 and increasingly accretive thereafter.
-- Cash flow from operations was $43.3 million for the fourth quarter, down $45.2 million from the prior year comparable period. Of this decline, $35.2 million relates to prior year cash flows from the former funeral services business while the remainder relates primarily to movements in working capital, including higher receivables associated with strong fourth quarter revenues. Full year cash flow from operations was $270.5 million, down $14.8 million, or 5.2 percent from the prior year, but up over 40 percent after taking into account the current and prior year cash flows from the funeral services business of $56.8 million and $136.2 million, respectively.
-- Income tax expense in the fourth quarter includes discrete period tax benefits of $1.5 million, or $0.02 per fully diluted share, pertaining to various tax matters resolved during the quarter. The prior year period included a lesser amount of discrete tax benefits.
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 Annual Report on Form 10-K for the year ended September 30, 2008, which will be filed later this month.
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.
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