Hillenbrand Industries Reports Third Quarter Revenues From Continuing Operations Of $461 Million

BATESVILLE, Ind., July 29 /PRNewswire-FirstCall/ -- Hillenbrand Industries, Inc. today reported unaudited financial results for its fiscal third quarter ended June 30, 2004 which included consolidated net income from continuing operations of $45 million, or $0.71 per diluted share, which includes $0.06 per share of expense from a debt repurchase during the fiscal 2004 third quarter. The quarterly results compare to consolidated net income from continuing operations in the comparable 2003 period of $52 million, or $0.84 per diluted share, which includes a charge of $0.10 per share for a restructuring action taken at Hill-Rom. Revenues for the quarter increased $35 million, or approximately 8.2 percent, to $461 million from $426 million in the prior year comparable period, driven entirely by revenues from acquired businesses.

Frederick W. Rockwood, president and chief executive officer, said, "While our results are credible, given the timing of Hill-Rom's new product launches and the timing of market conditions in the funeral service industry we are not satisfied with results. However, we are confident that our strategy is sound and that our people are aggressively executing our established game plan. The quarter is notable for progress we've made in several key areas. First, our capital structure has been strengthened to support our strategy. Second, we closed both of our previously announced divestitures -- of Forethought Financial Services and Hill-Rom's infant care business, which provides cash and clarity to our portfolio. Third, we continued to manage through Hill-Rom's unprecedented new product transitions. And, finally, we continued to integrate Hill-Rom's recent acquisitions on or ahead of schedule."

In addition he said, "Hill-Rom's order rates for their new frame product lines have strengthened. We have experienced a significant build in order backlog since January. While funeral service industry volumes were soft in the quarter and Batesville Casket's performance was below our expectations, all indicators show that Batesville Casket has outperformed its funeral service benchmark companies."

He added that, "While our earnings were within our range of previous guidance, we can and we intend to do better. In the short-term, we'll continue our efforts to further strengthen our balance sheet, integrate acquisitions, and take additional actions to reduce costs, increase productivity, and grow revenue by introducing new products and services to meet our customers' needs. We are excited about the many organic growth opportunities ahead of us. We intend to focus on managing our business for long term shareholder value creation."

Consolidated Results - Highlights

Gross Profit decreased $4 million to $223 million in the quarter from the prior year third quarter of $227 million. As a percentage of sales, consolidated gross profit margins of 48.4 percent decreased from 53.3 percent in the prior year period due to lower volumes at Hill-Rom, commodity price increases, and the full-quarter inclusion of Mediq, which has lower gross margins.

Other Operating Expenses for the quarter totaled $145 million, an increase from $136 million in the fiscal 2003 third quarter due to the newly acquired companies, which added operating expenses of approximately $14 million. As a percentage of revenues, operating expenses decreased to 31.5 percent in the 2004 period from 31.9 percent in the prior year period.

Cash and Cash Equivalents decreased $129 million to $51 million from $180 million at September 30, 2003 due to the 2002 settlement of litigation with KCI, and our acquisition and divestiture activity. As of July 29, 2004 we had no borrowing on our revolving line of credit and had approximately $100 million in cash.

Primary Working Capital (accounts receivable, plus inventory, minus accounts payable) declined $11 million versus the prior quarter with a $26 million reduction in accounts receivable being the primary driver of the reduction. Inventories increased by $5 million as a result of lower volumes and inventory build in response to our ongoing labor negotiations at Batesville Casket.

Capital Expenditures in the quarter were $28 million, driven primarily by costs related to the implementation of a company-wide enterprise management system, other miscellaneous plant and equipment expenditures related to the introduction of new products, and the replacement of therapy units in the rental fleet. Fiscal year 2004 capital expenditures, including capital expenditures at Mediq, ARI, and NaviCare are expected to approximate $120 million.

Health Care - Highlights

Capital Sales revenue decreased $6 million, or 3.1 percent, to $187 million in the fiscal third quarter of 2004 compared to $193 million in the third quarter of 2003. The revenue decrease was primarily attributable to previously discussed volume declines in bedframe and non-bedframe products -- as a result of Hill-Rom's introduction of and transition to two new bedframe lines, as well as unfavorable competitive pricing. Gross profit decreased $11 million from $100 million to $89 million in the fiscal third quarter of 2004. As a percentage of sales, gross profit was 47.6 percent in the 2004 fiscal third quarter compared to 51.8 percent in the same period of 2003.

Therapy Rental revenue increased $44 million to $121 million from $77 million, due entirely to the addition of Advanced Respiratory's and Mediq's revenues. Gross profit increased $11 million to $51 million in the third quarter of 2004, compared to $40 million in the prior year period. As a percentage of sales, gross profit was 42.1 percent in the quarter, down from 51.9 percent in the third quarter of 2003 -- attributable to a full quarter of lower margin rates at Mediq, which was acquired during the fiscal second quarter and has yet to see the benefit of our integration savings expectations.

Funeral Services - Highlights

Funeral Services revenue of $153 million decreased $3 million from the $156 million reported in the prior year comparable period. Gross profit decreased $4 million to $83 million in the quarter from $87 million in the comparable prior year period, attributable to both lower volumes and increased commodity prices.

For a more complete review of Hillenbrand's third quarter results, please refer to its Quarterly Report on Form 10-Q for the quarter-ended June 30, 2004. This report should be filed with the Securities and Exchange Commission (SEC) on Friday, July 30, 2004.

Guidance Summary For 2004

Hillenbrand Industries provides the following guidance for all investors and encourages all current and potential investors to review the Disclosure Regarding Forward-Looking Statements in this press release as well as all financial documents filed with the SEC. All guidance amounts are from continuing operations and before special items. A reconciliation of guidance given in the fiscal 2004 first quarter to the mid-range of current guidance is included in the tables attached to the release.

Outlook for 2004 Fiscal Fourth Quarter Ending September 30, 2004 ($ in millions, except EPS) Revenues: Health Care sales $200 to $209 Health Care therapy rentals 114 to 121 Funeral Services sales 155 to 159 Other to Total revenues 469 to 489 Other operating expenses 135 to 140 Income taxes 35 to 37 Diluted earnings per share from continuing operations $0.92 to $0.97 Average shares outstanding - diluted 62,500 Estimated gross margins (as a percent of revenues): Health Care sales 48.0% Health Care therapy rentals 41.5% Funeral Services sales 55.0% Gross margin total 48.5% Outlook for 2004 Fiscal Year End, September 30, 2004 ($ in millions, except EPS) Net revenues $1,823 to $1,843 Gross margin 50% Other operating expenses $563 to $568 Tax rate 39.9% Diluted earnings per share $3.25 to $3.30 Conference Call

The company will sponsor a conference call for the investing public at 9:00 a.m. EDT on Thursday July 29, 2004. In the call, management will discuss the results for the fiscal third quarter ended June 30, 2004, along with expectations for the remainder of 2004. The call is available at http://www.hillenbrand.com/ or http://www.placeware.com/cc/vcc/join?id-w318112&role-attend&pw=ng4cbz during the call and will be archived through August 12, 2004 for those who are unable to listen to the live Web cast. Interested parties may also access the conference call live by dialing 800-811-8830 (International callers 913-981-4904) both are to use confirmation code 318112 at the above time. A replay of the call is also available through August 12, 2004 at 888-203-1112 (719-457-0820 International) Code 318112 is needed to access the replay.

About Hillenbrand Industries Inc.

Hillenbrand, headquartered in Batesville, Indiana, is a publicly traded holding company for two major wholly owned businesses serving the funeral services and health care industries. Hill-Rom Company is a recognized manufacturer of equipment for the healthcare industry and a provider of associated services for wound, pulmonary and circulatory care. It is also a provider of medical equipment outsourcing and asset management services. Batesville Casket is a leading manufacturer and supplier of burial caskets, cremation products and related services to licensed funeral homes.

Disclosure Regarding Forward-Looking Statements:

Certain statements in this press release contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the Company's future plans, objectives, beliefs, expectations, representations and projections. The Company has tried, wherever possible, to identify these forward-looking statements using words such as "will," "hope," "believe," "planning," "expect," "should," "continue," or derivatives thereof, but their absence does not mean that the statement is not forward-looking. Forward-looking statements include those regarding guidance for 2004, the Company's goals for revenue and earnings growth, and the Company's efforts to further strengthen its balance sheet, integrate acquisitions, and take additional actions that will reduce costs, increase productivity, and enable the Company to develop new products and services to meet customer needs. It is important to note that the Company's actual results could differ materially from those in any such forward-looking statements. They are not guarantees of future performance. Reduced volumes at Hill-Rom, further increased commodity pricing or unavailability of raw materials, which affects both Hill-Rom and Batesville Casket, and potential work stoppages could adversely affect the Company's results and cause actual results to fall short of those indicated in forward-looking statements, including guidance for 2004. Other factors that could cause actual results to differ include but are not limited to: the Company's dependence on its relationships with several large national providers and group purchasing organizations, changes in death rates, whether the Company's new products are successful in the marketplace, changes in customers' Medicare reimbursements, the success of the implementation of the Company's enterprise resource planning system, compliance with FDA regulations, tax-related matters, potential exposure to product liability claims, failure of the Company to execute its acquisition strategy through the consummation and successful integration of acquisitions and the ability to retain executive officers and other key personnel. For a more in depth discussion of these and other factors that could cause actual results to differ from those contained in forward-looking statements, see the discussions under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the period ended September 30, 2003 and, when filed, the Company's Quarterly Report on Form 10- Q for the quarter ended June 30, 2003. The Company assumes no obligation to update or revise any forward-looking statements. Readers should also refer to the various disclosures made by the Company in the Company's periodic reports on Forms 10-K, 10-Q and 8-K filed with the SEC.

Hillenbrand Industries Condensed Financial Information Unaudited (Dollars in millions) Condensed Statement of Earnings 3Q04 2Q04 1Q04 4Q03 3Q03 Net revenues Health Care sales $183 $174 $165 $198 $193 Acquisition revenue - Mediq $4 $3 Health Care therapy rentals 76 80 81 80 77 Acquisition revenue - ARI 16 16 12 Acquisition revenue - Mediq 29 23 Funeral Services sales 153 176 164 156 156 Total revenues 461 472 422 434 426 Cost of revenue Health Care cost of sales 97 91 86 96 93 Acquisition cost of revenues - Mediq 1 1 Health Care therapy rental expenses 42 42 38 40 37 Acquisition cost of revenues - ARI 5 6 5 Acquisition cost of revenues - Mediq 23 17 Funeral Services cost of sales 70 76 74 69 69 Total cost of revenue 238 233 203 205 199 Gross profit Health Care 86 83 79 102 100 Acquisition - Mediq 3 2 Health Care therapy rentals 34 38 42 40 40 Acquisition - ARI 11 10 8 Acquisition - Mediq 6 6 Funeral Services 83 100 90 87 87 Total gross profit 223 239 219 229 227 Operating expense 145 138 146 138 136 Income from continuing operations 45 53 45 42 52 Net Income $39 $(48) $57 $6 $62 Diluted earnings per share: Earnings per share from continuing operations $0.71 $0.84 $0.72 $0.68 $0.84 Earnings per share $0.62 $(0.76) $0.91 $0.10 $1.00 Dividends per common share $0.27 $0.27 $0.27 $0.25 $0.25 Capital Structure Cash and cash equivalents $51 $80 $70 $180 $262 Total debt $399 $440 $155 $156 $328 Equity $1,040 $1,040 $1,088 $1,038 $1,044 Hillenbrand Industries Condensed Consolidated Earnings Unaudited (Dollars in millions) Quarter YTD Condensed Statement of Earnings 3Q04 3Q03 Y/Y% 3Q04 3Q03 Y/Y% Net revenues $412 $426 8% $1,251 $1,260 8% Acquisition revenue - ARI 16 45 Acquisition revenue - Mediq 33 59 Cost of revenue 209 199 20% 615 604 12% Acquisition cost of revenue - ARI 5 16 Acquisition cost of revenue - Mediq 24 43 Gross profit 223 227 (2%) 681 656 4% Operating expense 145 136 (7%) 429 406 (6%) Other income / (loss) (4) (12) (12) (39) Income tax expense 29 27 97 71 Income from continuing operations 45 52 (13%) 143 140 2% Discontinued operations (net of tax) (6) 10 (95) (8) Net Income $39 $62 $48 $132 Diluted earnings per share: Earnings per share from continuing operations $0.71 $0.84 $2.27 $2.25 Earnings per share $0.62 $1.00 $0.76 $2.13 Average common shares outstanding - diluted (thousands) 62,637 62,194 62,603 62,153

Hillenbrand Industries, Inc.

CONTACT: Wendy Wilson, Vice President, Investor Relations of HillenbrandIndustries, +1-812-934-7670

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