Hill-Rom Holdings, Inc. (NYSE: HRC), announced strong financial results for its fiscal third quarter ended June 30, 2010, and updated its outlook for the full year. Net income of $31 million compares to $20 million in the prior year. Earnings per diluted share of $0.48 compares to $0.32 per diluted share in the same period of the prior year, an increase of 50 percent. On an adjusted basis, earnings per diluted share of $0.45 increased 80 percent from $0.25 in the prior year. The improved financial performance was primarily the result of increased revenues and gross margin expansion.
Hill-Rom’s total revenue of $361 million increased 8 percent compared to the third quarter of last year on both a reported and constant currency basis. Domestic revenue increased 5 percent to $252 million, while international revenue increased 15 percent to $108 million. Excluding the impact of foreign currency, Hill-Rom’s international revenue increased 18 percent.
Management Comments
"We are pleased to deliver financial results that exceeded our expectations," stated John J. Greisch, president and CEO of Hill-Rom. "In addition to solid revenue growth, we are encouraged with the success of our continued focus on margin expansion."
Third quarter revenue highlights include:
— North America Acute Care. North America Acute Care revenue grew $16 million, or 8 percent, to $205 million. Capital sales increased 12 percent due primarily to higher sales of patient support systems which grew 21 percent. Rental revenue increased 2 percent.
— International and Surgical. International and Surgical revenue increased $11 million, or 12 percent to $107 million. On a constant currency basis, revenues increased 15 percent, primarily due to strong performance in Europe, the Middle East, Asia and our surgical business. Reported capital sales increased 15 percent and rental revenue declined by 10 percent.
— North America Post-Acute Care. North America Post-Acute Care revenue declined 1 percent to $50 million. Capital sales increased 6 percent, while rental revenue declined 3 percent. Capital sales growth in respiratory and home care was more than offset by declines in rental revenue from respiratory and home care products.
Third Quarter Financial and Operational Highlights
— Gross margin improved 440 basis points over the prior year to 49.4 percent due primarily to favorable product mix, cost control initiatives and lower materials cost.
— Adjusted operating margin of 13.2 percent compared to 7.4 percent in the prior year.
— Operating cash flow for the quarter of $62 million resulted primarily from strong earnings and accounts receivable collections.
— The Hill-Rom© 900 bed, our latest generation med/surg bed for international markets, was launched in Europe and other select geographies.
— Hill-Rom announced the appointment of two new executives to fill the roles of Senior Vice President and President, North America, and Senior Vice President & Chief Human Resources Officer.
Please see the attached schedules for additional information, including reconciliations of earnings in accordance with U.S. generally accepted accounting principles (GAAP) to adjusted income and earnings per share, condensed financial information, summary balance sheet, cash flow statement 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 June 30, 2010, which will be filed later this week.
Financial Guidance Summary for 2010
The company updated full year 2010 financial guidance as follows. Hill-Rom now expects constant currency revenue growth of between 5 and 6 percent. This excludes an expected currency benefit of approximately 1 percent for the full year. The company is increasing adjusted earnings guidance to $1.61 to $1.65 per diluted share. This compares to the company’s previous guidance of $1.33 to $1.43 per share. Adjusted earnings guidance excludes special items. Cash flow from operations for the full year is expected to be approximately $165 million, excluding a non-recurring pension contribution of approximately $40 million.
Hill-Rom Holdings, Inc. provides earnings per share results and guidance on an adjusted basis because the company’s management believes that the presentation provides useful information to investors. These measures exclude strategic developments, 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. 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. EDT, 7 a.m. CDT, on Thursday, July 29, 2010. The webcast is available at http://ir.hill-rom.com/events.cfm or http://ir.hill-rom.com/eventdetail.cfm?eventid=83499 and will be archived on the company’s website for those who are unable to listen to the live webcast. A replay of the call is also available through August 5, 2010, at 800-642-1687 (706-645-9291 International). Code 87176039 is needed to access the replay.
