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Hanger Beats Squarely; Profit Soars

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Hanger Inc.’s adjusted earnings of 58 cents per share for the fourth quarter of 2012 were 2 cents above the Zacks Consensus Estimate. Adjusted earnings exclude one-time items such as acquisition costs, certain tax benefits and expenses associated with the relocation of the company’s headquarters in 2010 and the company’s clinic management system ("Janus").

Profit in the reported quarter was up 21.1% to $21.8 million (or 62 cents a share), primarily led by accretive acquisitions along with controlled expenses.

For 2012, adjusted earnings of $1.81 per share also exceeded the Zacks Consensus Estimate of $1.78. Profit (as reported) climbed 16.5% year over year to $64.1 million (or $1.84 a share).


Revenues increased 9.7% year over year to $272.2 million in the quarter, beating the Zacks Consensus Estimate of $268 million. The growth was powered by higher sales across all three segments and acquisitions. The Patient-care services, Distribution and Therapeutic Solutions segments represented 84.2%, 9.6% and 6.2% of total sales, respectively, in the fourth quarter.

Sales from Hanger’s Patient-Care Services segment grew 10.5%, which includes 4.7% increase in same-center sales and a higher contribution of $12.0 million from acquisitions. Revenues from the Distribution segment grew 5.1% year over year. We also note the turn-around in Therapeutic sales, which increased 6.2% in the reported quarter.

For the full year, revenues of $985.6 million (up 7.3%) also surpassed the Zacks Consensus Estimate of $981 million.


Gross margin inched up to 71.3% from 71.1% a year ago. Operating margin was 14.3% compared with 13.8% in the prior-year quarter. Adjusted operating margin increased 40 basis points to 14.6% in the quarter, led by solid sales in the Patient Care segment along with controlled expenses.

Balance Sheet

Hanger ended the fourth quarter of 2012 with cash and cash equivalents of $19.2 million, down 55.2% year over year. Total debt increased 2.5% to $520.6 million.


Hanger provided its financial guidance for 2013. The company expects revenues in the band of $1.06 billion and $1.08 billion. It projects same center sales from its Patient Care Services segment to grow 3% to 5%. Distribution as well as Therapeutic sales are also projected to increase 3% to 5% in 2013.

On the earnings front, Hanger expects adjusted earnings per share in the range of $2.02 to $2.09 (up 11.6%—15.5%) in 2013. Adjusted earnings exclude one-time costs of 5 cent a share related to the deployment of the company’s new patient management system. The current Zacks Consensus Estimates for revenues and earnings per share in 2013 are $1,041 million and $2.00, respectively.

In addition, Hanger expects to generate operating cash flow of $80 million to $100 million in 2013 and aims to increase adjusted operating margins by 30–50 basis points and anticipates capital expenditure of $40 million to $50 million.

Hanger, in its fourth-quarter call, noted that it will continue its acquisition program in 2012 with a target of completing acquisitions, with aggregate annualized sales of roughly $20 million.

Our Take

Texas-based Hanger leads the orthotic and prosthetic (“O&P”) patient care services market, operating across more than 740 patient care centers in the U.S. The company’s economies of scale are unmatched by competition.  We are impressed by the company’s ability to grow its top as well as bottom line despite the exposure to reimbursement uncertainties and its aggressive acquisition strategy, which has inherent risks.

Hanger currently carries a Zacks Rank #2 (Buy). Other large-cap medical products companies such as Medtronic, Inc. (MDT - Free Report) , Covidien plc and Edwards Lifesciences Corp. (EW - Free Report) , which carry a Zacks Rank #2 (Buy), appear impressive.

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