Hill-Rom Beats on Q4 Earnings, Revenues; FY16 View Strong
Hill-Rom Holdings, Inc. HRC reported fourth-quarter fiscal 2015 adjusted earnings per share (EPS) of 83 cents, up 12.2% from the year-ago quarter. Adjusted EPS also surpassed the Zacks Consensus Estimate of 76 cents.
Hill-Rom Holdings Inc. (HRC) - Earnings Surprise | FindTheCompany
Solid revenue growth in the quarter, driven by stronger-than-expected contributions from Welch Allyn, Trumpf, and North America, was primarily responsible for the year-over-year earnings improvement.
Full-year adjusted EPS came in at $2.57, up 14.2% from fiscal 2014 and way ahead of the Zacks Consensus Estimate of $2.34.
Revenues in the fiscal fourth quarter increased 20% year over year to $574 million (up 25% at Constant Exchange Rate or CER) and steered ahead of the Zacks Consensus Estimate of $552 million. The upside was driven by solid contribution from strong North America capital revenue growth and the Trumpf Medical and Welch Allyn acquisitions. Excluding the benefit of the acquisitions, the company reported 7% growth at CER, driven primarily by 13% growth in North America and 6% growth in the Surgical and Respiratory Care businesses. Domestic revenues jumped 26% to $384 million while revenues outside the U.S. surged 22% to $190 million.
For the full year, revenues were pegged at $1,988 million, registering annualized growth of 18% (up 24% at CER). Excluding acquisitions, full year revenue growth was 7% at CER.
Reportable Segments
In the fourth quarter, North America revenues increased 12.2% year over year to $278 million. While North America capital sales increased 13% at CER, rental revenues improved 14% year over year.Strong sales of the Progressa ICU bed system and Clinical Workflow Solutions led capital sales growth while incremental volume drove rental growth.
The Surgical and Respiratory Care segment grew 32% (up 40% at CER) year over year to $141 million. Excluding contributions from Trumpf Medical, revenues increased 6% at CER.
Hill-Rom’s International business grew 16% (down 6% at CER) year over year to $106 million. Overall, capital revenue was down 5% while rental revenues declined 11% at CER in this segment.
Following the close of the Welch Allyn acquisition on Sep 8, 2015, this part of the company’s business generated revenues of $50 million for the rest of the fourth quarter of fiscal 2015.
Margin
Reported gross margin in the fourth quarter was 44.7%, up 27 basis points (bps) year over year despite a 19% increase in total cost of revenue. Adjusted gross margin was 44.6%, up 100 bps year over year. Excluding Trumpf, adjusted gross margin increased approximately 80 bps.
Adjusted operating margin, on the other hand, declined 426 bps to 4.1% on account of an increase of 37.7% in selling and administrative expenses and 13.4% in research and development expenses.
Outlook
Hill-Rom has provided its fiscal 2016 guidance. The company expects reported revenue in the range of $2.66–$2.70 billion leading to low single-digit organic growth at CER and 3–5% growth from Welch Allyn at CER. Negative currency impact of approximately 1–2% is projected for the period. The current Zacks Consensus Estimate for revenues is pegged at $2.67 billion.
Additionally, fiscal 2016 adjusted earnings per share are expected in the range of $3.08–$3.14.
Hill-Rom also provided its earnings and revenue projection for the first quarter of fiscal 2016. The company expects reported revenue between $645 million and $655 million implying low-to-mid single-digit organic growth at CER and approximately 3–4% of negative currency impact. First quarter adjusted earnings per share are projected within 60–62 cents.
Our Take
Hill-Rom ended fourth-quarter fiscal 2015 on a promising note, outshining the Zacks Consensus Estimate on both the top and bottom-line front. The company’s solid guidance for fiscal 2016 should further bolster investors’ confidence in the stock.
However, the operating margin scenario at Hill-Rom is a tad disappointing, and reflects the high cost burden the company is suffering. Nevertheless, we are relieved to note that the company is trying all means to considerably drive margins across its portfolio in the near term.
We are encouraged to note that, the recently completed Welch Allyn acquisition has already started to contribute to the company’s margin and will be further accretive going forward. Despite tepid business overseas due to weakness in parts of Europe and the Middle East, the company is positive on its growth prospects in the International segment in fiscal 2016 and beyond, based on its ongoing restructuring initiatives in Europe and its diversified portfolio therein. This buoys our optimism regarding the stock.
The stock currently carries a Zacks Rank #1 (Strong Buy).
Key Picks from the Sector
Some other top-ranked stocks in the broader medical sector are Orthofix International N.V. OFIX, SurModics, Inc. SRDX and Diadexus, Inc. DDXS. All the three stocks carry a Zacks Rank #1 as well.
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