Hill-Rom (HRC) Q4 Earnings and Revenues Top, Margins Up

Hill-Rom Holdings, Inc. HRC reported fourth-quarter fiscal 2017 adjusted earnings per share (EPS) of $1.32, an 11.9% increase from the year-ago quarter. Adjusted earnings surpassed the Zacks Consensus Estimate by 3.9% and remained above the company’s projected range of $1.26-$1.30.

This strong bottom-line performance was on the back of strong revenue growth, continued margin expansion, strategic investments to drive future growth and a lower tax rate, all of which helped offset a modest impact from the recent hurricanes.

Including one-time adjustments, Hill-Rom reported earnings of $1.03 per share compared with 77 cents in the year-ago quarter.

Full-year adjusted EPS was $3.86, up 14.2% from the year-ago period.

Revenue Details

Revenues in the fourth quarter of fiscal 2017 increased 4.6% year over year to $738 million (up 4% at CER). The top line also exceeded the Zacks Consensus Estimate of $732 million. Fiscal 2017 revenues came in at $2.74 billion, up 3% on a reported basis and up 4% at CER.

This strong revenue growth in the reported quarter was driven by a momentum in core business, the acquisition of Mortara and value added from newly-introduced products.

Geographically, U.S. revenues grew 3% to $513 million while revenues outside the U.S. increased 8% (up 5% at CER) to $225 million. Core revenue growth was 3% at CER, in line with the company’s expectation.

Segmental Performance

In the fiscal fourth quarter, Patient Support Systems revenues decreased 3% year over year (down 4% at CER) to $371 million. The segment’s domestic revenues declined 2%. However, after adjusting for divestitures, U.S. core revenues increased 2%. Product and service revenues increased 4%, partially offset by a decline in rental revenues.

Revenues at the Front Line Care segment, which include both Welch Allyn, Respiratory Care and Mortara, increased 16% to $245 million (same at CER). Apart from contribution from Mortara, the performance was driven by contributions from new products, strong growth of thermometry and blood pressure monitoring devices plus double-digit growth in respiratory care business.

The Surgical Solutions segment revenues increased 9% (up 7% at CER) to $122 million. This upside was backed by strong U.S. growth with a record placement of Integrated Table Motion and contribution from other products like the iLED7 and the new TS 3000 Mobile Operating Table.

Margins

Reported gross margin in the fiscal fourth quarter was 49.1%, unchanged year over year on account of a 4.6% increase in total cost of revenues. Adjusted gross margin grew 10 bps to 49.3% on the back of the company’s consistent initiative with portfolio diversification, benefits from cost and sourcing efficiencies, new product launches and the accretive gains from Mortara. Adjusted operating margin improved 70 bps to 19.3%.

Outlook

Hill-Rom has initiated its fiscal 2018 guidance and has also provided the fiscal first quarter view.

For the full year, the company expects revenue growth in the 3-4% range on a reported basis (Up 2% to 3% at CER). Excluding foreign currency, Mortara, divestitures and other non-strategic assets, the company expects core revenues to increase 3%. Hill-Rom also expects adjusted EPS in the range of $4.22-$4.30. The stock has seen the Zacks Consensus Estimate for fiscal 2018 earnings being pegged at $4.30 on revenues of $2.88 billion.

For the first quarter, Hill-Rom expects revenue growth of around 3% on a reported basis (or approximately 2% at CER). The company’s core revenues are expected to remain flat year over year. In addition, the company expects adjusted earnings per share of 77-79 cents. The stock has seen the Zacks Consensus Estimate for first-quarter earnings being pegged at 92 cents on revenues of $695.9 million.

Our Take

Hill-Rom exited fiscal 2017 on a strong note with the fourth-quarter earnings and revenues exceeding the respective Zacks Consensus Estimate. The company saw a solid year-over-year increase in revenues on strong international growth. Hill-Rom is currently aiming to gain traction in the untapped international market on successful execution, courtesy its efficient international team and organizational realignment. The company is putting efforts in product innovation through research and development. A slew of product launches in the fourth quarter is encouraging.

However, a decline in revenues at the Patient Support Systems segment is quite disappointing. Also, foreign exchange remains a headwind.

Zacks Rank & Other Key Picks

Hill-Rom has a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Luminex Corp. LMNX and Intuitive Surgical, Inc. ISRG. While PetMed and Luminex sport a Zacks Rank #1 (Strong Buy), Intuitive Surgical carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported earnings per share of 43 cents in the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Luminex reported adjusted earnings per share of 19 cents in the third quarter of 2017, up 216.7% year over year. The company’s revenues in the quarter increased almost 4.1% year over year to $74.1 million.

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% year over year. Also, revenues increased 18% year over year to $806.1 million.

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