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Hill-Rom (HRC) Up 0.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Hill-Rom (HRC). Shares have added about 0.2% 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’s Earnings Gain From Launches in Q2

Hill-Rom delivered second-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.14, excluding certain special items. This figure has improved 11.8% from the year-ago quarter and has surpassed the Zacks Consensus Estimate of $1.11 by 2.7%.
Revenues in the quarter came in at $714.2 million, reflecting a 0.5% increase from the year-ago quarter. The top line beat the Zacks Consensus Estimate of $708 million by 0.9%.

Geographically, U.S. revenues grew 5.8% in the reported quarter while the metric outside the United States declined 9.5% (down 3.7% at CER). Core revenue growth (after excluding foreign currency, divestitures, and non-strategic assets the company may exit, including the Surgical Solutions international OEM business) was 6%, exceeding the company’s guidance of 4% growth.

Starting from the fiscal first quarter, Hill-Rom has adopted a new revenue recognition accounting standard, ASC 606, on a modified retrospective basis. These results reflect the impact of the move. The strong performance was backed by solid core revenue growth, continued margin expansion and strategic investments.

Segment Details

In the quarter under review, Patient Support Systems revenues rose 1.3% year over year (up 3% at CER) to $359.6 million. This segment’s domestic revenues were up 7.4%, representing solid performance by all key capital product categories. This also marked the fourth consecutive quarter of double-digit core revenue growth in U.S. med-surg bed systems, Clinical Workflow Solutions and safe patient handling equipment. Outside the United States, core Patient Support Systems revenues declined 13.1% (down 7.2% at CER).

Revenues at the Front Line Care segment increased 2.2% to $243.1 million (up 3.9% at CER). The upside was driven by contribution from new products in respiratory care, vital signs monitoring and the Vision Care portfolio. Domestic revenues grew 4.5% while there was a 02.8% decline in international revenues (up 2.7% at CER). Globally, the company witnessed solid performance by this segment in Europe, Middle East and the Asia Pacific.

The Surgical Solutions segment revenues slipped 5.2% (down 1.8% at CER) to $111.5 million. Domestic revenues grew 2.2% while there was a 11.6% decline in international revenues (down 5.2% at CER).

Cash Position

The company exited the second quarter of fiscal 2019 with a cash and cash equivalent of $187 million, compared to $184.2 million at the end of the sequentially previous quarter. Net cash provided by operating activities at the end of the quarter under review was $158.2 million, compared to $125.6 million at the end of year-ago period.

Guidance   

Hill-Rom has updated its 2019 outlook. Adjusted EPS is now expected in the $5.02-5.06, excluding special items, which is higher than the earlier band of $4.98-5.06. The Zacks Consensus Estimate for fiscal 2019 earnings stands at $5.04, within the company’s guided band.

The company continues to expect revenue growth of 2-3% on a reported basis (up 3-4% at CER) and core revenue rise of 5-6%. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.88 billion.

For third-quarter fiscal 2019, revenues are expected to grow 3% on a constant currency basis. Including contribution from Voalte, core revenues are expected to increase 4% to 5%. The Zacks Consensus Estimate for third-quarter revenues is pegged at $717.3 million.

Adjusted earnings are estimated in the range of $1.20 to $1.22 per diluted share. The Zacks Consensus Estimate for the same stands at $1.26, above the company’s guided band.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Hill-Rom has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, 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 A. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.



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