Financial Guidance Summary For 2009
Management is updating full year 2009 adjusted financial guidance. Soderberg stated, “In spite of unprecedented economic turmoil affecting customer demand, we are in a position to update our guidance because of year to date performance and expense management actions that have improved cash flow and profitability versus our earlier outlook.”
Looking forward to the full year 2009, the company expects revenue to be in the range of $1.365 billion – $1.423 billion. The earlier revenue guidance range was $1.375 to $1.470. The company GAAP loss per fully diluted share from continuing operations is anticipated to be in the range of $6.61 to $6.91, versus a prior earnings range of $0.66 to $1.05. Adjusted earnings per fully diluted share are now anticipated to be $0.85 to $1.15. The prior guidance range was $0.82 to $1.18.
Management Comments
“Consistent with our previous outlook, U.S. hospital and extended care customers continued to take a very cautious view toward capital spending as a result of recessionary concerns, yet our International and Post Acute businesses held steady. Our sales results also suggest that Hill-Rom is faring about the same as other capital equipment-intensive medical technology companies,” commented Peter H. Soderberg, president and CEO of Hill-Rom. “In spite of the current softness in U.S. hospital capital equipment demand, we are maintaining our on-going multi-year growth strategy, while accelerating our efforts to reduce costs in both supply chain and other expense areas. We are pleased with the first six months of performance by our new Liko unit, and continue to integrate this business into our global and cross-continuum businesses as anticipated. We believe these efforts will position the company for future growth in anticipation of a return to more normalized customer demand.”
Soderberg continued, “As a result of our manufacturing, service, and operating expense cost control initiatives, gross profit and operating profit margins, as adjusted, expanded both sequentially and year-over-year. We limited the decline in adjusted operating income to 2.2%, while only slightly reducing our investments in selling and R&D. While we cannot predict the timing of when hospitals and other providers will return to more normalized capital acquisition behavior, we should be well positioned to resume our predicted long term growth rates in sales and profitability once the underlying fundamentals of demand for our products are restored. In the meantime, we will continue to focus on actions to improve our cost structure and increase our customer value proposition.”
As a result of the decline in our market capitalization as measured on March 31, 2009 related to the overall macro-economic climate and the impact on hospital capital spending, GAAP accounting and SEC requirements obligated us to conduct goodwill impairment testing. The test resulted in the company recording an estimated non-cash charge of $470 million in the quarter. The amount of the charge is subject to finalization in the third quarter. As this impairment charge is non-cash in nature, it does not affect liquidity, debt covenants or cash flow from operations. Further, this charge does not impact the company’s outlook for future growth or its business plan.
Soderberg concluded, “In spite of unprecedented pressures on the enterprise, Hill-Rom’s financial position remains strong. We are diversifying our business, and delivering growth at or above market in most of our units. Our balance sheet is healthy, cash flow increased both sequentially and year over year and the cadence of new product introduction continues to improve.”
Other second quarter revenue highlights regarding Hill-Rom business segments include:
North America Acute Care. Revenue declined $42.3 million, or 18.3%, to $188.6 million. Capital sales decreased 25.6% (23.5% constant currency), primarily driven by decreases in our patient support systems and furniture products, offset by gains in our healthcare information technology unit. Rental revenue was essentially flat during the quarter. While capital spending at US hospitals has been significantly impacted by economic pressures, rental revenue held flat primarily due to the popularity of our Envision® E-700 wound surface and TotalCare Bariatric Plus products. This favorability was offset by the absence of a more typical flu and pneumonia season versus the unusually intense season of the prior year.
International and Surgical. Revenue increased $3.8 million, or 3.9%, to $100.8 million, principally driven by the acquisition of Liko and strong growth outside of Europe. Constant currency growth was 16.5%. European revenues slowed during the quarter, decreasing low-single digits organically. Revenues in the rest of the world increased in excess of 40%. Allen Medical continued to grow at high single digit rates, indicating that the demand for surgical capital equipment remains reasonably strong.
North America Post-Acute Care. Revenue increased $0.9 million, or 1.9%, to $48.9 million. Capital sales increased by $2.7 million, or 31.8%, primarily due to the Liko acquisition, sales channel initiatives and direct to consumer sales. Rental revenue declined by $1.8 million, or 4.6%, with strong respiratory care performance offset by weaker home care and extended care revenues. Our extended care business was impacted by prior year contract losses, the effects of the economy on capital sales and a weak flu season compared to last year.
