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Hill-Rom (HRC) Q2 Earnings Surpass Estimates, Margins Up

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Hill-Rom Holdings, Inc. (HRC - Free Report) reported second-quarter fiscal 2021 adjusted earnings per share (EPS) of $1.73, excluding the impact of certain one-time expenses. The figure increased 35.2% from the year-ago quarter and surpassed the Zacks Consensus Estimate by 20.9%.

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

On a GAAP basis, earnings were $1.30 per share, reflecting a stupendous 85.7% surge from the year-ago reported figure.

Revenues in the fiscal second quarter came in at $762 million, up 5.4% from the year-ago quarter (up 3% at constant exchange rate or CER). The top line beat the Zacks Consensus Estimate by 4.5%. The rise in revenues was driven by continued recovery and increased demand for critical care products.

Quarter in Details

Geographically, in the reported quarter, U.S. revenues climbed 1.6% as bed purchases showed a sequential improvement and strong bed system rentals given the rising COVID-19 cases. Internationally, revenues climbed 6.2% on a constant-currency basis, with double-digit growth across Europe and emerging markets.

Segmental Update

Patient Support Systems revenues of $398 million increased 4% on a reported basis or 2% on a constant-currency basis, driven by continued 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 a return to double-digit growth across the company's care communications platforms. Patient Support Systems performance reflects strong international growth of 12% driven by market expansion of med-surg and ICU bed systems across Europe and other markets.

HillRom Holdings, Inc. Price, Consensus and EPS Surprise

 

Revenues at the Front Line Care segment improved 10% to $285 million (8% at CER). According to the company, this was driven by strong demand for Welch Allyn patient monitoring equipment and accelerated recovery across key products as physician office visits return to pre-COVID levels.

The Surgical Solutions segment’s revenues fell 5% (down 9% at CER) to $79 million. Strong growth of operating room tables, including Integrated Table Motion, was more than offset by the impact of the now-completed divestment of the international surgical OEM business and gradual recovery in projects due to the pandemic.

Margin

In the reported quarter, gross profit totaled $407.4 million, up 10.9% year over year. Gross margin expanded 265 basis points (bps) to 53.5%.

Selling, general and administrative expenses rose 6.6% to $223.7 million in the quarter under review, while research and development expenses increased 0.3% to $34.5 million.

Overall adjusted operating profit was $149.2 million, up 21.1% year over year. Adjusted operating margin expanded 254 bps year over year to 19.6 %.

Cash Position

The company exited second-quarter fiscal 2021 with cash and cash equivalents of $269.7 million compared with $294.6 million at the end of the fiscal first quarter. Long-term debt for the company at the end of the fiscal second quarter was $1.63 billion compared with $1.64 billion at the end of the first quarter of fiscal 2021.

The company returned $86 million to shareholders through dividends and share repurchases during the second quarter of fiscal 2021.

At the end of the fiscal second quarter, cumulative net cash provided by operating activities was $278.7 million compared with $156.7 million at the end of the year-ago period.

Fiscal 2021 Guidance

The company has raised its fiscal 2021 guidance. For fiscal 2021, Hill-Rom now expects revenue growth in the range of 1% to 3% on a reported basis. This compares to the previous guidance range of 0% to 2% growth.

Adjusted EPS is projected in the range of $6.00-$6.10 (earlier guidance was $5.70-$5.90). Operating cash flow is expected in the range of $440-$460 million. This compares to the company's previous guidance of operating cash flow of $400 to $430 million.

The Zacks Consensus Estimate for fiscal 2021 earnings is pegged at $5.80 on revenue expectation of $2.91 billion.

It also provided guidance for the third quarter of fiscal 2021. Hill-Rom expects revenues to decline 7-9% on a reported basis and adjusted earnings, excluding special items, of $1.32 to $1.36 per diluted share.

The Zacks Consensus Estimate for third-quarter fiscal 2021 earnings is pegged at $1.51 on revenue expectation of $731.7 million.

Our Take

Hill-Rom exited second-quarter fiscal 2021 with better-than-expected results. The company saw a year-over-year rise in revenues and earnings. There was a sharp recovery in emerging market businesses and U.S. core in the quarter under review.

Bed orders and backlog in the United States accelerated and the company experienced year-over-year growth in the Patient Support Systems arm as well. The company during the quarter witnessed an increase in demand for many critical care products. Further, the company has raised its financial guidance for 2021, calling for growth in revenues and earnings.

However, the decline in the Surgical Solutions segment due to the impact of the completed divestment of the International Surgical OEM business and a slow recovery in infrastructure projects due to the pandemic are discouraging.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the broader medical space are Merit Medical Systems, Inc. (MMSI - Free Report) , Illumina, Inc. (ILMN - Free Report) and HCA Healthcare, Inc. (HCA - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Merit Medical Systems reported first-quarter 2021 adjusted EPS of 52 cents beating the Zacks Consensus Estimate by 40.5%. Net revenues of $248.9 million outpaced the consensus estimate by 7.7%. It currently carries a Zacks Rank #2 (Buy).

Illumina, a Zacks Rank #2 company, reported first-quarter 2021 adjusted EPS of $1.89, beating the Zacks Consensus Estimate by 38.9%. Revenues of $1.09 billion outpaced the consensus estimate of $1.08 billion.

HCA Healthcare reported first-quarter 2021 adjusted EPS of $4.14, surpassing the Zacks Consensus Estimate by 23.6%. Net revenues of $14 billion exceeded the Zacks Consensus Estimate by 2.2%. It currently carries a Zacks Rank #2.

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