Hill-Rom Holdings, Inc. (NYSE: HRC), announced financial results for its fiscal third quarter ended June 30, 2011 and updated its outlook for 2011. Adjusted earnings per diluted share increased 4 percent during the period, to $0.47 from $0.45. Reported earnings per diluted share in the fiscal third quarter decreased to $0.02, compared to $0.48 in the same period in the prior year, and net income declined to $2 million from $31 million over the same periods. Reported EPS and net income reflect a $30 million after-tax charge for a potential legal settlement relating to a matter covering the period from 1999 to 2007.
Hill-Rom's quarterly revenue of $385 million increased 7 percent on a reported basis and 4 percent on a constant currency basis compared to last year. Domestic revenue increased 9 percent to $275 million while revenue outside the United States increased 2 percent to $110 million in the same period. Excluding the impact of foreign currency, Hill-Rom's revenue outside the United States declined 8 percent.
"Our third quarter performance was mixed, with continued strength in our North America Acute Care business partially offset by weaker international results," stated John J. Greisch, President & CEO. "Despite lower results in several of our business units and increased R&D spending, we delivered growth in adjusted earnings per share and strong operating cash flow for the quarter, reflecting our long term commitment to operational improvements and strong cash flow growth. Our full year outlook demonstrates continued improvement for 2011 in these key areas despite the challenges in the macro-environment."
Third quarter revenue highlights include:
-- North America Acute Care. North America Acute Care revenue grew 11 percent to $239 million. Capital sales increased 16 percent due primarily to higher sales of patient support systems, which grew 21 percent. Rental revenue was equivalent to the prior year.
-- International. International segment revenue, which excludes Canada, declined 2 percent to $94 million. On a constant currency basis, revenue decreased 12 percent, primarily due to declines in Europe partially offset by growth in Latin America.
-- North America Post-Acute Care. North America Post-Acute Care revenue increased 3 percent to $52 million. Both capital sales and rental revenue increased 3 percent versus the prior year. Strong growth in our respiratory business was partially offset by declines in our extended care and home care businesses.
Third Quarter Financial and Operational Highlights
-- Adjusted operating margin decreased 150 basis points to 11.7 percent, compared to 13.2 percent in the third quarter of last year. Lower capital gross margins resulting from unfavorable product mix and higher commodity and fuel costs, along with growth in R & D investment led to the operating margin decline.
-- Operating cash flow was $82 million, compared to $62 million in the third quarter of the prior year. Year-to-date cash flow of $189 million compared to $111 million in the same period of the prior year.
-- The company reached an agreement in principle with the federal government on the financial terms for a potential settlement of a previously disclosed qui tam complaint filed in 2005. Accordingly, Hill-Rom recognized an after tax charge of $30 million in the quarter. The settlement remains contingent on the final negotiation of an acceptable Corporate Integrity Agreement with the Health and Human Services Office of Inspector General.
-- The Basis™ Headwall System was introduced during the quarter. The new system provides clinical functionality for both intensive care unit and general care settings with a design that is aesthetically pleasing, easy to install and easy to maintain.
Please see the attached schedules for additional information, including condensed financial information, summary balance sheet, cash flow statement and segment sales summaries.
For a more complete review of Hill-Rom's results, please refer to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, which will be filed later this week.
Financial Guidance Summary for 2011
The Company updated 2011 financial guidance as follows: Hill-Rom now expects full-year constant currency revenue growth of approximately 7 percent, compared to the Company's previous guidance of 7 to 8 percent. This excludes a currency benefit of approximately 1 percent for the full year if exchange rates hold near recent levels. The Company is updating adjusted earnings guidance to $2.26 to $2.30 per diluted share, compared to the Company's previous guidance of $2.26 to $2.32. Guidance regarding cash flow from operations for the full year, excluding special items, remains unchanged at $230 to $240 million.
Hill-Rom Holdings, Inc. routinely provides earnings per share results and guidance on an adjusted basis because the Company's management believes that the presentation provides useful information to investors. These measures exclude strategic developments, special charges and the impact of significant litigation or other unusual events. Such items may be highly variable, difficult to predict and of a size that sometimes have substantial impact on the Company's reported operations for a period. Often, prospective quantification of such items is not feasible. Management uses these measures internally for planning, forecasting and evaluating the performance of the business. Investors should consider non-GAAP measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.