Orthotic and prosthetic (O&P) company Hanger Orthopedic ( HGR - Analyst Report ) posted first-quarter fiscal 2011 adjusted earnings per share of 19 cents, matching the Zacks Consensus Estimate and exceeding the year-ago adjusted earnings of 16 cents.

The adjusted earnings exclude the costs associated with the relocation of the company’s corporate headquarters. Profit (as reported) zoomed 55% year over year to $6.2 million (or 18 cents a share) owing to higher sales and lower relocation charges which fell roughly 82% year over year.

Revenues & Margins

Net sales climbed 12.4% year over year to $200.4 million, but trailed the Zacks Consensus Estimate of $205 million. The growth was led by higher revenues from the company’s therapeutic solutions business, boosted by its acquisition of rehabilitation technologies provider Accelerated Care Plus (“ACP”). Its distribution segment also contributed meaningfully to the growth.

Patient-care services, distribution and therapeutic solutions segments represented 80.2%, 11.7% and 8.1% to total sales, respectively. Adjusted operating margin for the quarter improved to 9.4% from 9.1% a year-ago.

Balance Sheet

Hanger exited the quarter with cash and cash equivalents of roughly $19.7 million, down 69% year over year. Total debt increased roughly 27% year over year to approximately $518.2 million.

Outlook

Hanger has raised its earnings forecast for fiscal 2011 while maintaining its sales expectation for the year. The company now expects adjusted earnings per share in the range of $1.66 to $1.71, up from its prior guidance of $1.63 to $1.68. The revision reflects the impact of the company’s amendment of its existing credit agreement to lower the interest rates. Revenues target for fiscal 2011 remains between $945 million and $955 million.

The current corresponding Zacks Consensus Estimates for fiscal 2011 are $948 million and $1.66. Hanger expects to generate operating cash flows of $85-$95 million for the full year and aims to increase operating margins by 20-40 basis points in its core business.

Hanger substantially completed the relocation of its headquarters from Bethesda, Maryland, to Austin, Texas. The company expects to incur additional costs of $1-$2 million in 2011 as the final phase of the relocation concludes.

Hanger leads in the O&P patient care services market, operating through more than 675 patient care centers across the U.S. The company’s economies of scale are unmatched by competition, which include notable players in the O&P space such as Orthofix International ( OFIX - Snapshot Report ) , Conmed Corp. ( CNMD - Analyst Report ) , Exactech Inc. ( EXAC - Snapshot Report ) and Owens & Minor Inc. ( OMI - Snapshot Report ) .

To expand its geographic presence, Hanger continues to pursue small tuck-in acquisitions. The acquisition of ACP in December 2010 added a fresh avenue of growth for the company. Hanger anticipates the transaction to be accretive in 2011. Moreover, the company is poised to achieve meaningful cost synergies from its corporate relocation.

However, Hanger’s back-to-back acquisitions could lead to substantial integration risk. We have an Outperform rating on Hanger, supported by a Zacks #2 Rank, which translates into a short-term Buy recommendation.