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Why Is Hill-Rom (HRC) Up 6.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Hill-Rom (HRC - Free Report) . Shares have added about 6.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Hill-Rom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Hill-Rom’s Q1 Earnings Beat Estimates, Margins Up

Hill-Rom reported first-quarter fiscal 2021 adjusted earnings per share of $1.53, excluding the impact of certain one-time expenses. The figure increased 35.4% from the year-ago quarter and surpassed the Zacks Consensus Estimate by 45.7%.

The adjustments include acquisition-related intangible asset amortization expenses, special charges and others.

On a GAAP basis, earnings were 88 cents per share, reflecting a 49.2% surge from the year-ago reported figure.

Revenues in the fiscal first quarter came in at $741.1 million, up 8.2% from the year-ago quarter (up 6.5% at constant exchange rate or CER). The top line beat the Zacks Consensus Estimate by 13.2%. The rise in revenue is driven by accelerated recovery and expanded demand for critical care products,

Quarter in Details

Geographically, in the reported quarter, U.S. revenues climbed 1.2% as lower capital revenue like beds and surgical equipment was offset by higher demand for bed rentals and several Front Line Care products. Internationally, revenues climbed 18.9% with double-digit growth across Europe, Asia Pacific and Canada.

Segmental Update

Patient Support Systems revenues of $377.4 million increased 9.6% on a reported basis or 8% on a constant currency basis, reflecting strong international expansion of med-surg and ICU bed systems, growth in U.S. bed system rentals to support customers in the treatment of COVID-19, and continued recovery in the company's care communications platforms.

Patient Support Systems performance reflects strong international growth of 33% driven by market expansion of med-surg and ICU bed systems across Europe and other markets.

Revenues at the Front Line Care segment improved 6% to $269.9 million (5% at CER). According to the company, this was driven by strong demand for Welch Allyn patient monitoring and blood pressure equipment, and thermometry. Other products, including physical assessment and vision care products, continued to show sequential gains as physician office visits return to pre-COVID levels.

The Surgical Solutions segment’s revenues increased 8.8% (up 4.4% at CER) to $93.8 million, reflecting strong international growth with the completion of some large projects in EMEA, partially offset by continued project delays in the United States due to the pandemic.

Margin

In the reported quarter, gross profit totaled $379.2 million, up 10.9% year over year. Gross margin expanded 128 basis points (bps) to 51.2%.

Selling, general and administrative expenses rose 6.2% to $209 million in the quarter under review, while research and development expenses rose 10.5% to $34.8 million.

Overall adjusted operating profit was $135.4 million, up 19.4% year over year. Adjusted operating margin expanded 172 bps year over year to 18.3%.

Cash Position

The company exited first-quarter fiscal 2021 with cash and cash equivalents of $294.6 million compared with $296.5 million at the end of fiscal 2020. Long-term debt for the company at the end of the fiscal first quarter was $1.64 billion compared with $1.66 billion at the end of the fiscal 2020.

The company returned $70 million to shareholders through dividends and share repurchases during the first quarter of fiscal 2021.

At the end of the fiscal first quarter, net cash provided by operating activities was $100.2 million compared with $77 million at the end of the year-ago period.

Fiscal 2021 Guidance

The company has raised its fiscal 2021 guidance. For full-year fiscal 2021, Hill-Rom now expects revenue growth in the range of 0-2% on a reported basis. This compares to the previous guidance of a 3% to 5% decline.

Adjusted earnings per share is projected in the range of $5.70-$5.90 (earlier guidance was $5.25-$5.45). Operating cash flow is expected in the range of $400-$430 million. This compares to the company's previous guidance range of operating cash flow of $370 to $400 million.
The Zacks Consensus Estimate for fiscal 2021 earnings is pegged at $5.36 on revenue expectation of $2.77 billion.

It also provided guidance for the fiscal second quarter 2021. Hill-Rom expects revenues to increase 0-2% on a reported basis, and adjusted earnings, excluding special items, of $1.40 to $1.45 per diluted share. The Zacks Consensus Estimate for second-quarter fiscal 2021 earnings is pegged at $1.36 on revenue expectation of $686.4 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 11.68% due to these changes.

VGM Scores

At this time, Hill-Rom has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Hill-Rom has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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