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Hill-Rom's (HRC) Q3 Earnings Top Estimates, Margins Expand

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Hill-Rom Holdings, Inc. (HRC - Free Report) reported third-quarter fiscal 2020 adjusted earnings per share (EPS) of $1.95, excluding the impact of certain one-time acquisition-related amortization expenses among others. The figure improved 58.5% from the year-ago quarter and also surpassed the Zacks Consensus Estimate by 35.4%.

The adjustments include expenses related to acquisition-related intangible asset amortization, special charges, regulatory compliance costs and COVID-19 related net costs and benefits, among others.

On a GAAP basis, earnings were $1.40 per share, reflecting a 191.7% surge from the year-ago reported figure.

Revenues

Revenues in the fiscal third quarter came in at $767.5 million, up 5.6% from the year-ago quarter (up 6.6% at constant exchange rate or CER). The top line beat the Zacks Consensus Estimate by 3.9%. The revenue growth reflects robust demand for critical care products in response to the pandemic.

HillRom Holdings, Inc. Price, Consensus and EPS Surprise

 

HillRom Holdings, Inc. Price, Consensus and EPS Surprise

HillRom Holdings, Inc. price-consensus-eps-surprise-chart | HillRom Holdings, Inc. Quote

The company’s core revenues rose 12%, reflecting the contribution of the Breathe Technologies acquisition and benefits of more than $100 million for COVID-related purchases. For investors’ note, core revenues exclude impact of foreign currency, divestitures and non-strategic assets the company may exit, including the Surgical Solutions international original equipment manufacturer business.

Geographically, in the reported quarter, U.S. revenues declined 4.2% while the metric outside the United States climbed 31.9% (up 35.6% at CER). In this case, the core revenues grew 40% primarily resulting from uptick in demand for COVID-related products like ICU and med-surg beds, thermometry and vital signs monitoring equipment.

Segmental Update

In the quarter under review, Patient Support Systems revenues rose 19.6% year over year (up 20.6% at CER) to $447.8 million. This segment’s core revenues increased 23%, resulting from robust demand for med-surg and ICU bed systems and rentals due to the pandemic, partially offset by a fall in patient handling equipment and Care Communications' nurse call and mobile offerings due to limited hospital access for installations.

Revenues at the Front Line Care segment improved 3.2% to $252.1 million (up 4.4% at CER). According to the company, this was driven by robust international growth, surge in global demand for the Welch Allyn vital signs monitoring equipment and thermometry and fulfilment of one-time Life2000 non-invasive ventilator orders of approximately $25 million. However, in the United States, fall in physician office visits led to a decline in certain product categories, including physical assessment and diagnostic tools.

The Surgical Solutions segment’s revenues declined 37.4% (down 36.7% at CER) to $67.6 million affected by delay in projects, limited hospital access for installations and the surgical consumables divestiture. Core revenues fell 21% due to project timing and capital delays due to the pandemic.

Margin

In the reported quarter, gross profit totaled $409 million. Gross margin expanded 423 basis points (bps) to 53.3% on a 14.7% rise in gross profit.

Selling, general and administrative expenses declined 6.8% to $202.3 million in the quarter under review, while research and development expenses rose 0.9% to $34.4 million.

Overall adjusted operating profit was $172.3 million, up 63.5% year over year. Moreover, adjusted operating margin expanded 795 bps year over year to 22.4%.

Cash Position

The company exited the fiscal third quarter with cash and cash equivalents of $331.8 million compared with $290.5 million at the end of the second quarter of fiscal 2020. Long-term debt for the company at the end of the fiscal third quarter was $1.78 billion compared with $1.86 billion at the end of the fiscal second quarter.

The company returned $114 million to shareholders through dividends and share repurchases during the first nine months of fiscal 2020.

Year to date, cumulative net cash, cash equivalents and restricted cash provided by operating activities was $314.8 million compared with $301.1 million at the end of the year-ago period.

Fiscal 2020 Guidance

Given the uncertainties related to the pandemic-led business disruptions, Hill-Rom is not reinstating its financial guidance. However, the company is upbeat about its performance through the fiscal third quarter and effective management of the company during this challenging period. Based on this, the company expects its fiscal 2020 adjusted EPS of at least $5.40 per share. The Zacks Consensus Estimate for the same is pegged at $5.44 per share.

Hill-Rom projects adjusted EPS, excluding the impact of intangible asset amortization associated with prior business acquisitions, within $1.23-$1.28 per share for fiscal 2020.

Our Take

Hill-Rom exited third-quarter fiscal 2020 with better-than-expected results. The company saw a solid year-over-year increase in revenues on robust international growth, boosted by sturdy performance in majority of segments and geographies. The coronavirus pandemic has pumped up demand for the company’s products like ICU beds and thermometry. Expansion of both margins buoys optimism as well.

The company’s efforts to extend healthcare service beyond hospital settings are noteworthy. It introduced five innovative products in the fields of remote monitoring, respiratory care and surgical workflow for better patient service.

Hill-Rom entered into a partnership with Aiva to facilitate hands-free voice-enabled communication on the Voalte Mobile solution. Further, Hill-Rom completed the buyouts of Connecta Soft and Videomed to enhance its digital footprint and advance its vision of Advancing Connected Care. These activities buoy optimism on the stock.

However, the company’s domestic sales suffered due to the pandemic-led business disruptions. Sales in Surgical Solutions dropped significantly, which resulted from project delays, limited hospital access for installations and the surgical consumables divestiture. Also, the company is not providing any guidance for 2020, raising apprehensions.

Zacks Rank and Key Picks

Hill-Rom currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. (WST - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and PerkinElmer, Inc. (PKI - Free Report) . All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

West Pharmaceutical reported second-quarter 2020 adjusted EPS of $1.25, beating the Zacks Consensus Estimate by 37.4%. Net revenues of $527.2 million outpaced the consensus estimate by 6.9%.

Thermo Fisher reported second-quarter 2020 adjusted EPS of $3.89, beating the Zacks Consensus Estimate by 45.7%. Revenues of $6.92 billion outpaced the consensus mark by 0.1%.

PerkinElmer reported second-quarter 2020 adjusted EPS of $1.57, surpassing the Zacks Consensus Estimate by 68.8%. Revenues of $811.7 million outpaced the consensus mark by 1.3%.

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