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Hill-Rom Holdings Keeps Its Growth Streak Alive

By Brian Feroldi - Updated Aug 2, 2019 at 3:17PM

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Margin improvements allowed the medical equipment supplier to turn single-digit revenue growth into outsize gains where it counts.

Hill-Rom Holdings (HRC), a supplier of medical equipment, reported its fiscal third-quarter 2019 results on Friday.

Hill-Rom's year-over-year numbers continue to be distorted by the adoption of a new accounting standard called ASC 606. When you adjust for those effects, the numbers looked pretty good.

Hill-Rom fiscal Q3 2019 results: The raw numbers

Metric Q3 2019 Q3 2018 Change
Revenue $727 million $709 million 2.5%
Operating profit $70 million $79 million (11%)
Net income $33 million $45 million (27%)
Earnings per share $0.48 $0.67 (28%)

Data source: Hill-Rom.

What happened with Hill-Rom this quarter?

  • Patient support systems revenue, which includes beds and patient handling equipment, grew 7% to $375 million. 
  • Front-line care revenue, which is sales of Hill-Rom's respiratory care, vital signs monitoring, and vision care products, grew 2% to $244 million.
  • Surgical solutions revenue declined 2% to $108 million.
  • Core revenue, which excludes currency movements, divestitures, and nonstrategic assets, grew 6% on a currency-neutral basis, which was higher than management's guidance range.
  • Total revenue of $727 million was ahead of the $718.2 million that Wall Street was expecting.
  • Adjusted gross margin expanded 120 basis points to 50.3%.
  • On a comparable basis, earnings per share (EPS) grew 11% to $1.23 per share, exceeding the high end of management's guidance range. This was also a penny better than the consensus estimate in the analyst community.
  • Hill-Rom agreed to acquire Breathe Technologies, a maker of wearable, noninvasive ventilation technology. The transaction is expected to close in the upcoming quarter. 
Patient in hospital bed, holding doctor's hand

Image source: Getty Images.

What management had to say

Hill-Rom CEO John Groetelaars was quite happy with the company's performance. He was quoted as saying:

Our third quarter financial results reflect our team's successful execution of our strategic priorities with strong core revenue growth and earnings that exceeded expectations. We continue to advance our category leadership, transform our portfolio, and build differentiated solutions to enhance our ability to deliver on our vision of Advancing Connected Care.

Looking forward

Groetelaars commented:

Today we are raising our full-year core revenue growth expectation and reaffirming our adjusted EPS guidance range. Strong operational performance is expected to fully offset select investments and dilution related to the pending acquisition of Breathe Technologies, Inc., and the recent divestiture of surgical consumables.

Here's what he expects to happen in the fiscal fourth quarter of 2019:

  • Revenue is expected to be flat on a reported basis and up 1% on a currency-neutral basis. Core revenue is expected to grow 5%.
  • Adjusted earnings are expected to land between $1.64 and $1.66. 

For context, Wall Street was hoping for 3% reported revenue growth and $1.67 in adjusted earnings.

Management also updated its guidance for the full fiscal year:

  • Revenue is expected to grow 2% on a reported basis and 3% on a currency-neutral basis. Core revenue is expected to grow 6%. 
  • 2019 adjusted earnings are expected to be $5.03 to $5.05, which is a slight adjustment from its prior outlook of $5.02 to $5.06 per share.

The consensus estimate on Wall Street calls for 1.7% revenue growth for the full year and $5.04 in adjusted earnings, so this guidance was right in line with expectations.

Hill-Rom's stock dropped about 4% in the trading session following this earnings release. The pullback is most likely attributable to the slightly worse-than-expected guidance for the upcoming quarter.

Groetelaars did his best to remind investors that the company is focused on delivering against its financial objectives: "We remain committed to driving sustained core revenue and earnings growth while achieving our strategic objectives to create long-term value for patients, customers and shareholders."


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