Why Hill-Rom Holdings’ First Quarter Results Were Better Than They Appear

Hill-Rom Holdings (NYSE: HRC) generated huge gains for investors last year, with the medical technology stock soaring 28%. And it achieved this performance without posting splashy revenue or improving profits.

Nor was there much splash when Hill-Rom announced its fiscal 2020 first-quarter results before market open on Friday. But these results were better than it seems at first glance. Here are the highlights of the company’s Q1 update.

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By the numbers

Hill-Rom reported first-quarter revenue of $685 million, up slightly from $683.5 million in the same quarter a year earlier. The result also narrowly topped analysts’ average earnings estimate of $684 million.

The company reported net income of $39.8 million in the first quarter, or $0.59 per share, based on generally accepted accounting principles (GAAP). This represents a decrease from net income of $42.2 million, or $0.62 per share, in the prior year period.

Hill-Rom reported adjusted net earnings of $1.13 per share, compared to $1.02 per share in the same period of 2019. This easily beat analysts’ average adjusted earnings estimate of $1.08 per share. .

behind the numbers

Hill-Rom CEO John Groetelaars said, “We are delighted to report another quarter of strong financial results driven by our diverse portfolio and the successful execution of our strategic priorities. Year-over-year revenue growth well below 1% wouldn’t be considered “strong financial results” by most investors, but there was a key reason behind the company’s stable revenue: Hill-Rom sold its surgical consumables business last year.

A better number to look at for year-over-year comparisons is Hill-Rom’s base revenue, which excludes currency fluctuations and divestments. The company’s core revenue rose 6% year-over-year in the first quarter, at the upper end of its guidance range.

Hill-Rom’s largest unit, Patient Assistance Systems, generated $344 million in first-quarter revenue, up 1% from the year-ago period. Sales in the United States were particularly strong, with base revenue jumping 8%, largely due to increased adoption of the company’s healthcare communications and mobile products.

The company saw even stronger revenue growth from its frontline automotive business, with sales up 9% year-over-year to $255 million. This growth was driven by the continued momentum worldwide of its Welch Allyn vital signs monitoring systems and other products.

Surgical Solutions revenue fell 21% from the prior year period to $86 million. However, this decrease stems from the sale of the company’s surgical consumables unit. Surgical Solutions core revenue increased 9%, driven in part by strong customer demand for Hill-Rom’s Integrated Table Motion workflow product for Intuitive surgeryof the da Vinci Xi Robotic Surgical System.

Look forward

Hill-Rom expects its full-year 2020 revenue to grow 1% to 2%. The company expects non-GAAP adjusted earnings per share to be between $5.50 and $5.56. Hill-Rom also expects Q2 revenue to decline 1% to 2%, with adjusted earnings per share between $1.14 and $1.16.

Groetelaars said “the company’s category leadership strategy, new products, emerging market opportunities and the benefits of recent acquisitions position us well to drive sustainable growth, achieve our financial outlook and improve patient outcomes. and their caregivers.

A key thing for investors to watch with regards to Hill-Rom’s outlook this year, however, is the upcoming US election in November. With several high profile presidential candidates proposing major changes to the US healthcare system, healthcare stocks like Hill-Rom could be more volatile than they have been in recent years.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

Wiley C. Thompson