CHICAGO, Jan. 27, 2017 /PRNewswire/ -- Hill-Rom Holdings, Inc. (“Hill-Rom”) (NYSE: HRC) today announced financial results for its fiscal first quarter ended December 31, 2016, and confirmed its full-year adjusted earnings per diluted share and cash flow guidance.
For the fiscal first quarter, Hill-Rom reported earnings of $0.36 per diluted share compared to $0.07 per diluted share in the prior-year period. On an adjusted basis, earnings of $0.75 per diluted share rose 10 percent from $0.68 per diluted share in the prior-year period and were in line with the company’s previously-issued guidance. These results reflect stable U.S. customer demand, disciplined cost management, and continued margin expansion. Adjustments to reported earnings are detailed in the reconciliation schedules provided.
“Hill-Rom delivered solid earnings in the first quarter and made progress in expanding our capabilities, capitalizing on new product introductions, and partnering with customers to enhance outcomes for patients and their caregivers,” said John J. Greisch, president and chief executive officer of Hill-Rom. “Our performance and outlook reflect our commitment to drive sustainable performance through focused commercial and operational execution, and strategic investments that create long-term value for patients, customers and shareholders.”
Fiscal First Quarter Financial Results
In the fiscal first quarter, Hill-Rom’s worldwide revenue of $637 million declined 4 percent compared to the fiscal first quarter last year. On a constant currency basis, revenue declined 3 percent. Domestic revenue of $448 million grew 1 percent, while revenue outside the U.S. of $190 million declined 13 percent, or 10 percent on a constant currency basis. In addition to a difficult comparison to the prior-year period, revenue growth was impacted by the timing of certain international and U.S. distributor orders, and lower revenue from businesses the company recently divested or may divest.
By reporting segment:
Patient Support Systems: Patient Support Systems revenue of $335 million declined 2 percent on a reported basis, and declined 1 percent on a constant currency basis. U.S. revenue of $248 million rose 3 percent reflecting stable customer demand. In addition, U.S. orders increased 4 percent and the backlog rose 7 percent compared to the prior-year period, after adjusting for the impact of divested businesses.
Front Line Care: Front Line Care, which includes Welch Allyn and Respiratory Care, generated revenue of $202 million, a decline of 8 percent on both a reported and constant currency basis.
- Surgical Solutions: Surgical Solutions revenue of $100 million rose 1 percent on a reported basis and advanced 3 percent on a constant currency basis.
Gross margin expanded by 350 basis points to 47.5 percent, while operating margin improved 440 basis points to 8.8 percent. On an adjusted basis, gross margin expanded by 40 basis points to 47.5 percent and operating margin expanded by 140 basis points to 14.6 percent. Adjustments to gross margin and operating margin are detailed in the reconciliation schedules provided.
Operating cash flow of $71 million increased $25 million, or 54 percent, versus the prior-year period, and the company returned $41 million to shareholders in the form of dividends and share repurchases.
Recent Highlights
Complementing the company’s financial performance were a number of recent achievements, including:
Announcing an agreement to acquire Mortara Instrument, Inc., a privately-held leader in diagnostic cardiology and patient monitoring technology for $330 million in cash (or approximately $290 million net of the present value of a tax benefit). The transaction expands Hill-Rom’s diagnostic cardiology franchise, complements and enhances the company’s presence in vital signs monitoring, and is expected to accelerate revenue growth and be immediately accretive. The transaction is expected to close in Hill-Rom’s fiscal second quarter of 2017.
Launching new innovations, including the Welch Allyn Home Hypertension Program, enabling patients to monitor their blood pressure outside the physician office using the clinically-trusted Welch Allyn Home Blood Pressure Monitor. The company also recently introduced the Envella Air Fluidized Therapy bed with an advanced surface that provides the highest quality wound care, accelerating healing and reducing complications, leading to improved clinical outcomes and an overall lower cost of care for patients with complex wounds, such as pressure injuries, burns, flaps, and grafts.
- Optimizing the product portfolio with the divestiture of the non-core Architectural Products business, enabling Hill-Rom to direct resources, investment and focus to strategic, core growth platforms.
“We remain focused on executing our strategic priorities, leveraging Hill-Rom’s strong global brands and geographic footprint, and launching new innovations to ensure sustained growth and profitability in the years ahead,” Greisch continued. “With strong growth prospects and margin expansion opportunities, we are confident in our ability to achieve our 2017 guidance and long-term objectives.”
Fiscal Second Quarter and Full-Year 2017 Financial Outlook
Hill-Rom provided its fiscal second quarter financial outlook and reaffirmed its previously-issued 2017 full-year adjusted earnings per diluted share and cash flow guidance. The second quarter and full-year financial outlook do not include the impact of the pending Mortara Instrument acquisition.
For the full-year, Hill-Rom expects revenue to increase approximately 1 percent on a reported basis (or 2 percent on a constant currency basis.) Excluding the impact of completed and potential divestitures (with 2016 annual revenue of approximately $75 million) from both periods, Hill-Rom’s core revenue is expected to increase 3 to 4 percent on a constant currency basis. In addition, the company continues to expect adjusted earnings of $3.74 to $3.82 per diluted share and $330 to $340 million in operating cash flow (including the outflows associated with ongoing restructuring and integration activities).
For the fiscal second quarter 2017, Hill-Rom expects revenue to increase 2 to 3 percent on a reported basis (or 3 to 4 percent on a constant currency basis). Excluding the impact of completed or potential divestitures from both periods, Hill-Rom’s core revenue is expected to increase 4 to 5 percent on a constant currency basis. Hill-Rom also expects adjusted earnings per diluted share, excluding special items, of $0.77 to $0.79 per diluted share.
Discussion of Adjusted Financial Measures
Hill-Rom Holdings, Inc. routinely provides gross margin, operating margin and earnings per share results and guidance on an adjusted basis because the company’s management believes these measures contribute to an understanding of our financial performance and provide additional analytical tools to understand our results from core operations and reveal underlying trends. These measures exclude strategic developments, acquisition and integration costs, special charges or other unusual events. The company also excludes expenses associated with the amortization of intangible assets associated with prior business acquisitions. These adjustments are made to allow investors to evaluate and understand operating trends excluding the non-cash impact of acquired intangible amortization on operating income and earnings per share.
Management uses these measures internally for planning, forecasting and evaluating the performance of the business. Investors should consider adjusted measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Reconciliations of GAAP measures to adjusted measures appear in the financial tables of this release.
Our adjusted earnings per diluted share guidance excludes the impact of intangible asset amortization associated with prior business acquisitions which we expect to be approximately $1.00 to $1.05 per diluted share for the fiscal year. This estimate excludes intangible asset amortization related to the pending Mortara Instrument acquisition. Management also adjusts for certain items such as strategic developments, acquisition and integration costs, special charges, and other unusual items in our adjusted earnings per diluted share guidance because such items are being evaluated on an ongoing basis, can be highly variable and cannot be reasonably predicted. As such, the estimation of these items is not feasible and a full reconciliation of adjusted earnings per diluted share guidance to GAAP earnings per share has not been provided. However, as a result of significant recent acquisitions and our ongoing supply chain footprint and portfolio optimization, we believe that the impact of items we have excluded from our adjusted earnings per diluted share guidance may be significant with respect to our GAAP measures, including gross margin, operating margin and earnings per share.
The company also presents certain results on a constant currency basis.
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