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Hill-Rom's (HRC) Earnings and Revenues Top Estimates in Q2

Zacks Equity Research
The strong Q2 performance of Hill-Rom (HRC) is backed by solid core revenue growth, continued margin expansion and strategic investments.

Hill-Rom Holdings, Inc. HRC 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.

Our Take

Hill-Rom exited the second quarter of fiscal 2019 on a strong note. The company saw a solid year-over-year increase in revenues on robust domestic growth, driven by sturdy performance in Patient Support Systems and Front Line Care.

We are upbeat to note the company’s strong momentum across its diversified product portfolio which includes  Centrella Smart+ bed, Welch AllynConnex Spot Monitor, Monarch Airway Clearance System, Integrated Table Motion for the da Vinci Xi Surgical System. The acquisition of Voalte buoys optimism as it boosts Hill-Rom’s digital and mobile communications platform.

On the flip side, international revenues of each of the company’s key segments have declined.

Zacks Rank and Other Key Picks

Hill-Rom currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks which posted solid results this earning season are Stryker Corporation SYK, Abbott Laboratories ABT and CONMED Corporation CNMD, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered first-quarter 2019 adjusted EPS of $1.88, beating the Zacks Consensus Estimate by 2.2%. Revenues of $3.52 billion were in line with the Zacks Consensus Estimate.

Abbott reported first-quarter 2019 adjusted EPS of 63 cents, beating the Zacks Consensus Estimate by 3.3%. First-quarter worldwide sales came in at $7.54 billion, above the consensus estimate of $7.47 billion.

CONMED posted first-quarter 2019 adjusted EPS of 57 cents, which beat the Zacks Consensus Estimate of 54 cents. Revenues were $218.4 million, surpassing the consensus mark of $213 million.

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