Hill-Rom Holdings, Inc. HRC reported third-quarter fiscal 2018 adjusted earnings per share (EPS) of $1.15, reflecting a 26.4% increase from the year-ago quarter. Adjusted earnings surpassed the Zacks Consensus Estimate by 1.8% and were well above the company’s projected range of $1.12-$1.14.
The strong bottom-line performance was backed by a solid core revenue rise, continued margin expansion and growth-driving strategic investments. This marked the 12th consecutive quarter of double-digit earnings growth for the company.
Revenue Details
Revenues in the third quarter climbed 2.8% year over year to $708.6 million (up 1% at constant exchange rate or CER). The top line also exceeded the Zacks Consensus Estimate of $708 million on momentum in core business.
Hill-Rom Holdings, Inc. Price, Consensus and EPS Surprise
Hill-Rom Holdings, Inc. Price, Consensus and EPS Surprise | Hill-Rom Holdings, Inc. Quote
Geographically, U.S. revenues grew 5% to $494 million while revenues outside the United States dipped 2% (down 7% at CER) to $215 million. Core revenue growth was 4% at CER.
Segmental Performance
In the third quarter, Patient Support Systems revenues inched up 1% year over year (year over year on par at CER) to $360 million. The segment’s domestic core revenues were up 8%, representing solid performances across all key capital product categories. However, outside the United States, core Patient Support Systems revenues declined 4%.
Revenues at the Front Line Care segment inclusive of Welch Allyn, Respiratory Care and Mortara, increased 5% to $239 million (up 4% at CER). Domestic growth of 4% was driven by the contribution from new products including the Monarch Mobile Vest and Vision Care portfolio. International revenues rose 4% with a solid performance across Europe, Canada and the Middle East.
The Surgical Solutions segment revenues grew 2% (flat at CER) to $110 million, reflecting a challenging international comparison with last year’s tally.
Margins
Reported gross margin in the fiscal third quarter was 49.1%, up 106 bps year over year. Adjusted gross margin grew 80 bps, buoyed by a positive contribution from product mix, primarily related to portfolio optimization initiatives and new products as well as benefits from manufacturing productivity and procurement efforts. Adjusted operating margin expanded 214 bps to 13.1% in the reported quarter.
Outlook
Hill-Rom has reaffirmed its fiscal 2018 revenue guidance, tapered its earnings guidance and has also provided the fiscal fourth quarter’s estimates.
For the full year, the company continues to expect 3-4% revenue growth on a reported basis (up 2-3% at CER). Excluding foreign currency, Mortara, divestitures and other non-strategic assets, the company continues to expect core revenue growth of 3%. The Zacks Consensus Estimate for fiscal 2018 revenues is pegged at $2.85 billion.
Hill-Rom now anticipates expects adjusted earnings per share for fiscal 2018 in the range of $4.62-$4.65 compared with the previous projection of $4.60-$4.65. The Zacks Consensus Estimate for fiscal 2018 earnings stands at $4.63, within the company’s guided range.
For the fiscal third quarter, Hill-Rom expects revenue rise of around 2% on a reported basis or at CER. Core revenues are expected to increase 4% year over year. The company estimates adjusted earnings per share of $1.50-$1.53. The Zacks Consensus Estimate for third-quarter fiscal earnings is $1.52 on revenues of $756.5 million.
Our Take
Hill-Rom exited the fiscal third quarter on a strong note. The company saw a solid year-over-year increase in revenues on robust domestic growth, driven by a sturdy performance in Patient Support Systems and Surgical Solutions.A challenging international comparison resulting from last year’s large construction project in the Middle East, hampered growth.
The company is currently focusing on product innovation through research and development. Year to date, it has achieved more than $180 million as new product revenues.
Zacks Rank & Other Key Picks
Hill-Rom has a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader medical space are Insulet Corp. PODD, Amedisys, Inc. AMED and Integer Holdings Corp. ITGR.
Insulet is expected to release second-quarter fiscal 2018 results on Aug 2. The Zacks Consensus Estimate for the quarterly loss per share is pegged at 13 cents and for revenues at $132.9 million. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Amedisys is expected to release second-quarter 2018 results on Jul 31. The consensus mark for adjusted EPS is pegged at 78 cents and for the top line at $403.6 million. The stock carries a Zacks Rank of 1.
Integer Holdings is slated to release second-quarter 2018 results on Aug 2. The consensus estimate for the bottom line per share stands at 90 cents and for revenues at $381.8 million. The company is a Zacks #1 Ranked player.
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