Invacare (IVC) Q4 Loss Narrower than Estimate, Sales Miss
Invacare Corporation IVC reported adjusted loss of 6 cents per share in the fourth quarter of 2015, narrower than the Zacks Consensus Estimate of a loss of 14 cents.
Adjusted loss was also narrower than the loss of 12 cents reported in the year-ago quarter. The year-over-year improvement may be contributed to a better gross margin and lower selling, general and administrative expenses. However, these positives were partially offset by lower sales and an unfavorable foreign exchange rate.
Net sales in the fourth quarter deteriorated almost 11% on a year-over-year basis to $283.3 million and also missed the Zacks Consensus Estimate of $285 million. The year-over-year downside can be primarily attributed to declining sales at the Institutional Products Group (IPG) and North America/ Home Medical Equipment (HME) segments.
Sales from the North America/HME segment fell almost 7.5% to $115.4 million. On a constant currency basis, sales declined 6.3%. Lower sales of respiratory and lifestyle products was the primary reason behind the segment’s dismal performance in the quarter under review. However, these negatives were partially offset by improved sales of mobility and seating products.
Sales from Europe also fell 10.7% (up 1.2%) to $138.7 million. Improving sales from mobility, seating and respiratory products was offset by decline in lifestyle products.
IPG net sales surged 31.7% to $18.2 million. However, excluding the impact of the divested rentals businesses, net sales at constant currency declined 3.5%. The downside was primarily because of lower sales in therapeutic support surfaces and interior design projects.
Sales from Asia/Pacific declined 4.7% (up 10.8% at constant currency) to $10.9 million.
Gross margin expanded by 70 basis points (bps) to 28.5%. The upside was primarily due to better sales mix, which was somewhat offset by an unfavorable foreign exchange rate. Excluding the benefit of warranty accrual reversals in 2015 and the impact of the divested rentals businesses from 2014, gross margin in the reported quarter was 110 bps higher than the year-ago quarter.
Free cash flow in the fourth quarter of 2015 amounted to $29.2 million, as compared with $11.4 million in the year-ago quarter. The upside was primarily due to decreased inventory and accounts receivable as well as an increase in accounts payable.
Business Outlook
Management is gradually shifting its focus to clinically complex products and the initiative will continue in 2016 as well with higher level of investments and training programs. Per management at Invacare, results in Europe for 2016 are expected to be affected by an unfavorable foreign exchange rate.
Reimbursement reductions from the rural rollout of National Competitive Bidding are expected to exert pressure on North America/HME sales in the first half of 2016. Management believes that the first quarter of 2016 will provide substantial challenge as it will be affected by weakness in seasonal sales.
Zacks Rank and Key Picks
Currently, Invacare has a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector are Abiomed ABMD, Exactech EXAC and Luminex LMNX. All the stocks sport a Zacks Rank #1 (Strong Buy).
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