Hill-Rom Holdings (HRC), a maker of medical equipment, reported its fiscal second-quarter 2019 results on Friday, April 26.
Hill-Rom's headline numbers are a bit deceiving, because the company recently switched to a new accounting standard called ASC 606 that distorts its year-over-year comparisons. On an apples-to-apples basis, the company's results were good across the board, and management was able to drive its 15th consecutive quarter of double-digit earnings growth. Revenue growth also came in slightly ahead of what management had previously predicted.
Hill-Rom fiscal Q2 2019 results: The raw numbers
| Metric | Q2 2019 | Q2 2018 | Change (YOY) |
|---|---|---|---|
| Revenue | $714 million | $711 million | 1% |
| Operating profit | $81 million | $46 million | 76% |
| Net income | $50 million | $29 million | 74% |
| Earnings per share | $0.74 | $0.42 | 11.2% |
Data source: Hill-Rom.
Image source: Getty Images.
What happened with Hill-Rom this quarter?
- Patient support systems revenue, which includes beds and patient handling equipment, grew 3% to $360 million. Front-line care revenue, which includes products from the company's respiratory care, vital signs monitoring, and vision care portfolio, grew 2% to $243 million. Surgical solutions revenue declined 5% to $112 million.
- Core revenue grew 6% on a currency neutral basis, which exceeded management's guidance. Core revenue excludes foreign currency, divestitures, and non-strategic assets the company may exit from.
- Gross and operating margin expanded by 20 and 50 basis points, respectably, compared with the year-ago period.
- On a comparable basis, earnings per share grew 12% to $1.14 per share. That was ahead of management's guidance range of $1.09 to $1.11 per share.
- The quarterly dividend climbed 5% to $0.21.
- Hill-Rom purchased a digital and mobile communications platform called Voalte for $180 million in cash during the quarter. The bolt-on acquisition is designed to bolster the company's digital platform.
What management had to say
Hill-Rom CEO John Groetelaars was quite happy with the company's performance:
We are pleased to deliver another strong quarter of accelerated core revenue growth, positive new product momentum across our diversified portfolio, and financial results that exceeded our guidance. This performance reflects the power of our global brand, strong customer relationships, and increasing demand for our innovative technologies and solutions. We continue to execute on our strategic priorities and vision of advancing connected care to enhance outcomes for patients and their caregivers.
Looking forward
The company's strong start to the fiscal year allowed management to favorably tweak guidance. Here's what management expects to happen in the fiscal third quarter of 2019:
- Revenue is expected to grow by 2%. Core revenue is expected to grow 4% to 5%.
- Adjusted earnings are expected to land between $1.20 to $1.22.
And here are management's updated targets for the fiscal year:
- Full-year revenue guidance was raised by 100 basis points to a new range of 2% to 3%. Core revenue is expected to grow 5% to 6%, which includes the impact of recent acquisitions.
- 2019 adjusted earnings are expected to land between $5.02 to $5.06 per share. This is an increase from its prior outlook of $4.98 to $5.06.
- Free cash flow is expected to reach $330 million.
Groetelaars restated that the company continues to focus on delivering on its near- and long-term objectives:
We remain committed to driving sustainable and profitable growth as we continue to selectively invest to enhance our commercial capabilities, expand internationally, and drive innovation which will position our company for long-term success.
