Hill-Rom Reports Fourth Quarter Financial Results

BATESVILLE, Ind., Nov. 11 /PRNewswire-FirstCall/ –

– Revenue of $363 million declined 14.4 percent versus prior year and increased 8.5 percent sequentially
– Adjusted earnings per share were $0.41 versus $0.58 in prior year and $0.25 in prior quarter
– GAAP earnings per share were $0.42 compared to $0.38 in prior year and $0.32 in prior quarter
– Total gross margin improved 250 basis points versus prior year
– Free cash flow was $41 million, an increase of $23 million versus prior year
– Management announces annual revenue and earnings guidance for fiscal year 2010: Revenue $1.445-1.500 billion and earnings $1.20 to $1.36 per share

Hill-Rom Holdings, Inc. (NYSE: HRC), announced unaudited financial results for its fiscal fourth quarter ended September 30, 2009. Revenue was $363.3 million, a 14.4 percent decrease from $424.3 million in the prior year comparable period and an increase of 8.5 percent compared to the third quarter. On a constant currency basis, revenue decreased 13.5 percent. Organic revenue (excludes currency impact and Liko revenue of $15.5 million) decreased 17.1 percent. Hill-Rom net income from continuing operations was $26.4 million, or $0.42 per fully diluted share. Adjusted earnings per fully diluted share from continuing operations were $0.41, a decrease of 29.3 percent from the prior year. Unless otherwise indicated, amounts in the current quarter include the results of Liko, acquired on October 1, 2008.

For full-year fiscal 2009, revenues and loss per fully diluted share from continuing operations were $1,386.9 million and $6.47, respectively, compared to $1,507.7 million and $1.07 earnings for full-year fiscal 2008. On an as adjusted basis, fully diluted earnings per share from continuing operations for the full 2009 fiscal year were $1.18 compared to $1.40 per fully diluted share in 2008, a decrease of 15.7 percent.

Management Comments

“In the final quarter of a very challenging fiscal year, our revenue performance was consistent with our plans, yet gross margins and earnings considerably exceeded our expectations,” stated Peter H. Soderberg, president and CEO of Hill-Rom. “Given the record fourth quarter we experienced last year just prior to the downturn of hospital capital spending, the comparisons were quite difficult; however, sequential revenues were up and we finished with capital equipment backlogs somewhat higher than 2008. Rental revenues were up year-over-year with only a minor contribution from H1N1-related demand. U.S. capital spending by customers remains significantly curtailed, yet leading demand indicators seem to have stabilized or are improving. Internationally, we continued to see mixed sales results, with Europe down approximately ten percent organically while the Middle East and Australia showed strong growth. Liko posted operating income that exceeded our expectations, and continues to confirm our acquisition rationale. ”

Soderberg continued, “Our efforts to improve profitability and cash flow were once again apparent in the quarter. Our gross margin improved 250 basis points and operating expenses continued to decline sequentially as a percent of revenue. Our balance sheet management and discipline in capital spending  helped contribute to our strong cash flows. This performance reflects a concerted effort over several periods to address our cost and capital structure and deliver sustainable sales and profit growth as the global economy improves.”

Soderberg concluded, “The global recession, uncertainty related to health care reform in the U.S. and health care spending pressures in other major countries continue to influence purchasing decisions of customers. Accordingly, we have remained conservative regarding the speed of a recovery; however, the diversity of our business model, sustainable cost reductions, product portfolio enhancements and increasing geographical presence has contributed importantly to our ability to weather this unprecedented economic storm. We funded during the year several initiatives to enhance revenue generation in 2010, including several new products, improved sales channel presence, and the establishment of novel business partnerships. Our improving ability to deliver health care solutions and new products that provide differentiated clinical and economic outcomes position us well for 2010 and are the basis of our improved outlook for mid-single digit sales growth and expanding margins.”

Other fourth quarter revenue highlights regarding Hill-Rom business segments include:

– North America Acute Care. North America Acute Care revenue declined $62.1 million, or 22.8 percent, to $210.4 million versus the record quarter a year ago. Capital sales decreased 30.7 percent, or $65.1 million, for the quarter, and decreased 22.1 percent for the year, which is consistent with the outlook we provided in January contemplating a 15-30 percent decline in our hospital capital sales. Rental revenue increased by $3.0 million, or 5.0 percent, driven by growth of therapy rental products.

– International and Surgical. International and Surgical capital and rental revenues were stable versus the prior year at $103.4 million. On a constant currency basis, revenue growth was 3.4 percent as sales from the Liko acquisition were partially offset by organic volume declines in Europe and by stable revenues in the rest of the world. As reported, the capital sales increase of $0.9 million was offset by a nearly equivalent decline in rental revenue.

– North America Post-Acute Care. Hill-Rom North America Post-Acute Care revenue grew 1.8 percent to $51.2 million. Capital sales revenue increased 14.4 percent offset by a moderate decline in rental revenue. Strong performance of respiratory care (over 20 percent growth) was offset by declining home care and extended care revenues.

Other Fourth Quarter Financial and Operational Highlights

Gross Profit and Operating Expenses:

– Hill-Rom gross profit declined 9.7 percent versus the prior year to $171.3 million. Total gross margin improved 250 basis points. Capital gross profit declined by 17.7 percent but gross margin improved by 130 basis points versus the prior year due primarily to lower commodity costs, price stability and improved international and post-acute care margins. Rental gross profit grew by 7.0 percent and associated gross margin improved 300 basis points, due primarily to the success of our new wound and bariatric products, lower fuel costs and significant cost improvements within the field service network.

– Operating expenses were essentially flat, despite the addition of Liko ($8.1 million of operating expenses). As expected, operating expenses increased sequentially due to higher sales commissions, the timing of significant research and development projects and new product launches and higher variable compensation given the stronger than expected fourth quarter performance. Offsetting these higher expenses were the continuing favorable effects of job elimination actions, other general and administrative cost reduction activities aimed at reducing core operating expenses and foreign exchange movements.

– Hill-Rom free cash flow increased to $40.7 million, as strong gross margins, continued expense controls, lower capital expenditures and working capital improvements have resulted in strong conversion to cash despite our capital sales decline. This compares to free cash flow in the fourth quarter of last year of $18.0 million. The company’s cash and cash equivalents position improved to $170.6 million, up $42.3 million from last quarter.

– The income tax rate for the quarter was 28.8 percent compared to 27.4 percent in the prior year period. Versus our prior expectation for the quarterly tax rate, the rate is lower due to improved profitability in lower tax rate jurisdictions and favorable discrete tax benefits.

Other:

– We have just announced a new joint venture with Encompass Group to form Encompass Therapeutic Support Systems, LLC, which will provide customers with a broad range of mattress replacement systems for existing hospital bed frames through an enhanced and focused national sales force. The joint venture, which will be majority-owned by Hill-Rom, will provide modest incremental revenue and earnings to Hill-Rom and combine existing and new products from both companies into the largest portfolio of surfaces offered by any supplier.

– During the fourth quarter, Hill-Rom established a new Respiratory Care Development Center (RCDC) in collaboration with the Singapore Economic Development Board (EDB). The RCDC will join our Asia-Pacific Innovation and Patient Support Development Centers increasing our commitment to research and product development in Singapore. Our goal for the new RCDC is to identify, develop and commercialize innovative respiratory care technologies and products for global markets to supplement our leading high velocity chest wall oscillation therapy known as The Vest