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Why Is Hill-Rom (HRC) Up 11.7% 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 11.7% 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 catalysts.

Hill-Rom Beats on Earnings in Q4 on Growth In All Lines

Hill-Rom delivered fourth-quarter fiscal 2018 adjusted earnings per share (EPS) of $1.63, reflecting a 23.5% increase from the year-ago quarter. The bottom line also exceeded the Zacks Consensus Estimate by 7.9% and was well above the company's projected range of $1.50-$1.53 as well.

The strong performance was backed by a solid core revenue rise, continued margin expansion and growth-driving strategic investments. This in turn, marked the 13th straight quarter of double-digit earnings growth for the company.

Full-year adjusted EPS came in at $4.75, a 23% rise from the year-ago period.

Revenue Details

Revenues in the fiscal fourth quarter climbed 3% year over year to $759.2 million (same at constant exchange rate or CER). The top line also exceeded the Zacks Consensus Estimate of $751 million on sturdy growth in core business. Full-year worldwide revenues were $2.85 billion, up 4% (improving 2% at CER) compared with the prior-year figure.

Geographically, U.S. revenues grew 7% to $544 million in the reported quarter while the metric outside the United States declined 6% (down 4% at CER) to $215 million. Core revenue growth was 4% at CER.

Segmental Performance

In the quarter under review, Patient Support Systems revenues inched up 2.5% year over year (up 3.1% at CER) to $380.4 million. This segment's domestic core revenues were up 10%, representing solid performances across all key capital product categories. This is the second consecutive quarter with double-digit growth in med-surg bed systems, Clinical Workflow Solutions and safe patient handling equipment. However, outside the United States, core Patient Support Systems revenues fell 6%.

Revenues at the Front Line Care segment increased 5.4% to $258.7 million (up 5.9% at CER). Domestic growth of 9% was driven by the contribution from new products including the Connex Spot Monitor, the Monarch Mobile Vest and our Vision Care portfolio. International revenues dipped 1%, primarily due to a drop in sales in Asia-Pacific. However, the company registered a solid performance across Europe, Canada and the Middle East.

The Surgical Solutions segment revenues slipped 1.4% (down 0.7% at CER) to $120.1 million.

Margins

Reported gross margin in the fiscal fourth quarter was 49.6%, up 45 bps year over year. Adjusted gross margin grew 30 bps, buoyed by a positive contribution from product mix, primarily related to portfolio optimization initiatives and new products as well as benefits from manufacturing productivity and procurement efforts. Adjusted operating margin expanded 209 bps to 16.6% in the reported quarter.

Outlook

Hill-Rom has provided its fiscal 2019 financial guidance. The company expects revenues to rise 1-2% on a reported basis (up 2-3% at CER) and core revenues to grow 4-5%. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.92 billion.

Adjusted EPS for the year is expected in the $5.08-$5.16 range. The Zacks Consensus Estimate for fiscal 2019 earnings stands at $5.10, within the company's guided band.

For the first-quarter fiscal 2019, Hill-Rom expects a revenue rise of around 1% on a reported basis (or up 2% at CER). Core revenues are expected to increase 4% year over year.  The company estimates adjusted earnings per share of $0.97-$0.99. The Zacks Consensus Estimate for first-quarter earnings is $1.04 on revenues of $684.3 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.88% due to these changes.

VGM Scores

At this time, Hill-Rom has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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