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Hill-Rom (HRC) Q4 Earnings, Revenues Top Estimates, Fall Y/Y

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Hill-Rom Holdings, Inc. (HRC - Free Report) reported fourth-quarter fiscal 2020 adjusted earnings per share (EPS) of $1.17, excluding the impact of certain one-time acquisition-related amortization expenses among others. The figure declined 30.8% from the year-ago quarter but surpassed the Zacks Consensus Estimate by 8.3%.

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

On a GAAP basis, earnings were 63 cents per share, reflecting a 53.7% surge from the year-ago reported figure.

Full-year adjusted EPS was $5.53, reflecting an 8.9% rise from the year-ago period.

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

Revenues in the fiscal fourth quarter came in at $705.3 million, down 9.9% from the year-ago quarter (down 11% at constant exchange rate or CER). The top line however beat the Zacks Consensus Estimate by 1.2%. This reflects normalization of demand for beds and sequential recovery across most of the remaining portfolio.

Fiscal 2020 worldwide revenues were $2.88 billion, down 1% on a reported and constant currency basis. Core revenues increased 3% including 200 basis points contributions from acquisitions and $180 million from one-time COVID-related purchases. Core revenues exclude impact of foreign currency, divestitures and non-strategic assets the company may exit, including the Surgical Solutions international OEM (original equipment manufacturer) business.

Quarter in Details

Geographically, in the reported quarter, U.S. core revenues declined 15% on lower capital revenues like beds and surgical equipment. Internationally, revenuesclimbed 5% resulting from the recovery in the emerging markets, where growth exceeded 10%, led by double-digit growth in China and the Middle East.

Segmental Update

Patient Support Systems revenues of $365 million declined 12% on a reported basis, or 13% on a constant currency basis. The performance reflects a challenging comparison to a record finish in the fourth quarter of fiscal 2019, the COVID-19-led peak demandfor med-surg and ICU bed systems in the fiscal third quarter, and nearly 30% sequential growth in the company's care communications platforms. Partially offsetting U.S. weakness was strong international growth of 17% on a constant currency basis, driven by elevated demand for med-surg and ICU bed systems.

In the quarter under review, Patient Support Systems revenues declined 12% year over year (up 13% at CER) to $365 million. This performance primarily reflected a challenging year-over-year comparison andthe impact of the COVID-19 peak demand for Med-surg and ICU bed systems in the fiscal third quarter. In the quarter, bed revenues declined by more than 20% despite a COVID-19 tailwind of approximately $25 million, driven primarily by elevated demand across Europe.

Revenues at the Front Line Care segment improved 1% to $260 million (same at CER). According to the company, this was driven by a strong demand for Welch Allyn vital signs and blood pressure monitoring equipment, thermometry and non-invasive ventilators. Other product categories, including physical assessment and diagnostic tools, declined in the United States.

The Surgical Solutions segment’s revenues declined 27% (down 29% at CER) to $80 million, affected by delay in projects, lower demand for surgical capital equipmentand the surgical consumables divestiture.

Margin

In the reported quarter, gross profit totaled $356.9 million, down 7.5% year over year. Gross margin however expanded 132 basis points (bps) to 50.6%.

Selling, general and administrative expenses rose 3% to $211.5 million in the quarter under review, while research and development expenses rose 1.7% to $36.2 million.

Overall adjusted operating profit was $109.2 million, down 24.6% year over year. Adjusted operating margin contracted 303 bps year over year to 15.5%.

Cash Position

The company exited fiscal 2020 with cash and cash equivalents of $296.5 million compared with $331.8 million at the end of the third quarter. Long-term debt for the company at the end of the fiscal fourth quarter was $1.66 billion compared with $1.78 billion at the end of the fiscal third quarter.

The company returned $129 million to shareholders through dividends and share repurchases during fiscal 2020.

Full-year cumulative net cash, cash equivalents and restricted cash provided by operating activities was $481.7 million compared with $401.4 million at the end of the year-ago period.

Fiscal 2021 Guidance

The company initiated its fiscal 2021 guidance this time. For fiscal 2021, Hillrom expects revenues to decline in the range of 3-5% on a reported as well as CER basis. Adjusted EPS is projected in the range of $5.25-$5.45. Operating cash flow is expected in the range of $370-$400 million. The company expects to complete the exit of the Surgical Solutions international OEM business at the end of calendar year 2020. The Zacks Consensus Estimate for fiscal 2021 earnings is pegged at $5.38 on revenue expectation of $2.81 billion.

It also provided first-quarter fiscal 2021 outlook. Hillrom expects revenues to decline in the range of 3-5% on a reported and CER basis. Adjusted earnings are expected in the range of $1.05-$1.10 per share. The Zacks Consensus Estimate for first-quarter fiscal 2021 earnings is pegged at $1.02 on revenue expectation of $648.4 million.

Our Take

Hill-Rom exited fourth-quarter fiscal 2020 with better-than-expected results. However, the company saw a year-over-year fall in both revenues and earnings. While there was recovery in emerging market businesses, U.S. core revenues declined significantly in the quarter.

On a positive note, bed orders and backlog in the United States accelerated and the company experienced sequential recovery in Patient Support Systems arm. Also, with gradual easing out of hospital access restrictions, quoting activities accelerated and revenues rebounded to near pre-COVID levels.

While providing the fiscal 2021 guidance, Hill-Rom noted that in this period, demand for its COVID-19 support products that peaked during fiscal 2020 will normalize. Also, a gradual recovery in other product categories is also expected.

Zacks Rank and Key Picks

Hill-Rom currently has a Zacks Rank #5 (Strong Sell).

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 Align Technology, Inc. (ALGN - Free Report) .

West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, a Zacks Rank #2 company, reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.

Align Technology reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by a stupendous 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently carries a Zacks Rank #2.

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