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Why Is Hill-Rom (HRC) Down 0.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Hill-Rom (HRC). Shares have lost about 0.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hill-Rom due for a breakout? 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 drivers.

Hill-Rom Beats on Q3 Earnings

Hill-Rom Holdingsdelivered third-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.23 excluding certain special items. This figure improved 6.9% from the year-ago quarter and also surpassed the Zacks Consensus Estimate of $1.21 by 1.7%.

Moreover, revenues in the quarter came in at $726.8 million, reflecting a 2.6% increase from the year-ago period. The top line also beat the Zacks Consensus Estimate of $719 million by 1.1%.

Geographically, U.S. revenues grew 7.2% in the reported quarter while the metric outside the United States declined 8.1% (down 4.2% at constant exchange rate or 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 4-5% growth.

Segment Details

In the quarter under review, Patient Support Systems revenues rose 6% year over year (up 7% at CER) to $375 million. This segment’s domestic revenues were up 8.3%, representing solid performance across the company’s diverse and differentiated portfolio of connected solutions and services, which include smart beds, clinical workflow solutions and mobile communications platform, Voalte.

Outside the United States, core Patient Support Systems revenues declined 8.1% (down 4.2% at CER). 

Revenues at the Front Line Care segment inched up 2.3% to $244.4 million (up 3.3% at CER), banking on revenue contribution from new products resulting in double-digit growth in vision and respiratory care. Further, robust growth of certain physical assessment and diagnostic tools aided the top line within this segment. Domestic revenues grew 5.3% while there was a 5% decrease in international revenues (down 1.4% at CER).

The Surgical Solutions segment revenues slipped 1.8% (up 0.2% at CER) to $107.9 million. While domestic revenues grew 8.3%, there was a 12.2% fall in international revenues (down 8.1% at CER).

Cash Position

The company exited the third quarter of fiscal 2019 with a cash and cash equivalent of $202.6 million compared with $187 million at the end of the sequential quarter. Year to date, net cash provided by operating activities was $301.1 million compared with $249.8 million at the end of the year-ago period.

Guidance   

Hill-Rom has updated its 2019 outlook. Adjusted EPS is now expected in the $5.03-5.05 range excluding special items, which is narrower than the earlier band of $5.02-5.06. The Zacks Consensus Estimate for fiscal 2019 earnings stands at $5.04, within the company’s guided band.

The company tapers its revenue expectation for the full year to 2% (at CER 3%) from the earlier-projected range of 2-3% (earlier range was 3-4% at CER). Core revenues are now projected to grow at 6% rate (earlier range was 5-6%). The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.90 billion.

For fourth-quarter fiscal 2019, revenues are expected to grow 1% on constant currency basis. Core revenue growth is predicted at 5%. The Zacks Consensus Estimate for quarterly revenues is pegged at $780.38 million.

Adjusted earnings in the fiscal fourth quarter  are estimated in the range of $1.64-$1.66 per share. The Zacks Consensus Estimate for the same stands at $1.67, above the company’s guided band.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Hill-Rom has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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 B. 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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