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Hill-Rom Holdings (HRC) Down 3% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Hill-Rom Holdings Inc (HRC - Free Report) . Shares have lost about 3% in that time frame, underperforming the market.

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

Recent Earnings

Hill-Rom Holdings reported third-quarter fiscal 2017 adjusted earnings per share (EPS) of 91cents, up 12.3% from the year-ago quarter. Adjusted earnings surpassed the Zacks Consensus Estimate by a penny and were at the high end of the company’s projected range of 89–91 cents

Including one-time adjustments, Hill-Rom’s net income in the fiscal third quarter was $6.0 million or 9 cents per share compared with $45.3 million or 68 cents, respectively.

Revenue Details

Revenues in the third quarter of fiscal 2017 increased 5.1% year over year to $689.1 million (up 6% at CER). However, it missed the Zacks Consensus Estimate of $696 million. Revenue growth was driven by the momentum in core business, the acquisition of Mortara and value from newly-introduced products. In line with this, the company unveiled Hill-Rom Envella Air Fluidized Therapy Bed and Hill-Rom 900 Accella bed system. Also, the company has entered the digital health space through the introduction of Monarch Airway Clearance System.

Geographically, U.S. revenues grew 4% to $471 million while revenues outside the U.S. increased 7% (up 10% CER) to $218 million. Core revenue growth was 4% at CER, in line with the company’s guided range of 4–5%.

Reportable Segments

In the fiscal third quarter, Patient Support Systems revenues decreased 1.7% year over year (down 1.1% at CER) to $354.7 million. However, the segment’s domestic revenues declined 1.4% due to the impact of the WatchChild and Architectural Products divestitures and lower rental revenues. U.S. core revenues increased 2% excluding divestitures, product revenues increased 4%. This was partially offset by a decline in rental revenues. Product revenues include bed and patient handling systems and the clinical workflow solutions business. International revenues increased 2% on a core basis, driven by improving trends in the Middle East, Latin America and Canada.

Revenues at the Front Line Care segment, which includes both Welch Allyn, Respiratory Care and Mortara, increased 18% to $227 million (increased 19% at CER).The performance was driven by gains in new products, double-digit growth in vital signs monitoring and benefits from leveraging on Hill-Rom's commercial infrastructure in international markets

The Surgical Solutions segment revenues increased 6% (up 7% at CER) to $107 million. The upside was backed by international growth of 15%, gains from products like the Integrated Table Motion system, iLED7 and new TS 3000 Mobile Operating Table as well as growth from surgical positioning equipment and Aspen medical.

Margins

Reported gross margin in the fiscal third quarter was 48%, down 10 basis points (bps) year over year on account of a 5.3% increase in total cost of revenue. Adjusted gross margin grew 20 bps to 48.3% on the back of the company’s consistent initiative with portfolio diversification, on benefits from cost and sourcing efficiencies, new product launches and the accretive gains from Mortara. Adjusted operating margin improved 90 bps to 16.1% owing to SG&A leverage.

Outlook

Hill-Rom provided its fourth-quarter 2017 financial outlook and updated its fiscal 2017 adjusted earnings per diluted share and cash flow guidance.

Considering Mortara revenues of approximately $30 million, Hill-Rom expects revenue growth of 3.0–4.0% on a reported basis and at CER in the fiscal fourth quarter. Excluding Mortara and the impact of completed or potential divestitures from both the periods, Hill-Rom's core revenues are expected to rise around 3% at CER. Hill-Rom also expects adjusted EPS per share in the range of $1.26 to $1.30.

For the full year, Hill-Rom expects revenue growth of around 3% (earlier it was 3.5% to 4%) on a reported basis (or approximately 4% at CER). Excluding Mortara and the impact of completed and potential divestitures (with 2016 annual revenues of approximately $75 million) from both the periods, Hill-Rom's core revenues are expected to increase around 3% (earlier it was 3.5% to 4%) at CER.  In addition, the company expects adjusted earnings per share of $3.80–$3.84 (earlier $3.82–$3.88) and maintains operating cash flow guidance at the range of $330–$340 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

Hill-Rom Holdings Inc Price and Consensus

 

Hill-Rom Holdings Inc Price and Consensus | Hill-Rom Holdings Inc Quote

VGM Scores

At this time, Hill-Rom Holdings' stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with a F. Following the exact same course, the stock was allocated also 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than those looking for value.

Outlook

The stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.




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