Invacare Corp. (IVC) reported adjusted loss of 12 cents per share in the fourth quarter of 2014, narrower than the Zacks Consensus Estimate of a loss of 23 cents. The loss incurred was also better off than the year-ago loss of 22 cents per share.
The lower adjusted loss can be attributed to an improved gross margin and declining selling, general and administrative (SG&A) expenses, partially offset by reduced net sales.
Quarter Details
Net sales declined 3.8% on a year-over-year basis to $318.2 million. However, the top line was higher than the Zacks Consensus Estimate of $311 million.
Organic net sales slipped 0.5% year over year. The downside was driven by a net sales decline in the North America/ Home Medical Equipment (HME) segment, which was partially offset by higher net sales in the European, Institutional Products Group (IPG) and Asia/Pacific segments.
Revenues from North America/HME fell 11.3% to $124.8 million. Organic net sales decreased 10.7% on a year-over-year basis driven by declines in all product categories.
IPG sales amounted to $26.7 million, up 6.2%. Organic net sales increased 6.5% driven by growth in interior design projects and therapeutic support surfaces, partially offset by reduced rental revenues.
Revenues from Europe inched up 1.2% on a year-over-year basis to $155.3 million. Organic net sales for the quarter increased 7.2%, principally due to improvement in lifestyle and respiratory products, which were partially offset by a drop in mobility and seating products.
However, revenues generated from Asia/Pacific dipped 0.7% to $11.4 million. Organic net sales increased 5.5% which may be attributed to volume increases at Invacare's distribution businesses in Australia and New Zealand. This was partially offset by declines at the company's subsidiary that produces microprocessor controllers.
Gross margin expanded 20 basis points (bps) from the year-ago quarter. The expansion may be attributed to favorable product and customer mix, offset by pricing pressure.
Selling, general and administrative expenses decreased 6.3% to $88.6 million, primarily due to reduced associate costs, which included partial benefits from the company’s restructuring program announced on Aug 20, 2014.
Adjusted EBITDA increased 12.3% to $8.6 million on a year-over-year basis.
Financial Position
Cash and cash equivalents, as of Dec 31, 204, amounted to $38.9 million, compared with $29 million at the end of the previous quarter. Long-term debt, at the end of the fourth quarter, stands at $19.4 million, compared with $23.9 million at the end of the third quarter of 2014.
Our Take
Invacare reported a modest fourth quarter beating the Zacks Consensus Estimate on both lines. The decline in net sales was, however, disappointing.
We are particularly concerned about the low net sales at the North America/HME segment, which naturally had an adverse impact on total revenue.
Further, in our opinion, the reduced shipment of Invacare HomeFill oxygen systems is quite alarming, since it has significantly hurt net sales in respiratory products. The mobility and seating product category of Invacare continues to be impacted by the FDA consent decree, which limits production of custom power wheelchairs and seating systems at the company’s Taylor Street manufacturing facility.
Moreover, management refrained from providing any guidance but insisted that 2015 results will be negatively affected by unfavorable foreign exchange headwinds. According to us, this may hurt the company’s prospect in the near term.
Zacks Rank
Currently, Invacare carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the broader medical sector include Inogen (INGN), Synergetics USA (SURG) and ABIOMED (ABMD). All the three stocks sport a Zacks Rank #1 (Strong Buy) and are worth a look over the short term.
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