Hanger 1Q Earnings Beat - Analyst Blog
May 02 2013 - 10:40AM
Zacks
Hanger Inc.’s
(HGR) adjusted earnings per share (EPS) of 28 cents for the first
quarter of 2013 beat the Zacks Consensus Estimate of 25 cents. It
also exceeded the year-ago first quarter 2012 adjusted EPS by 12%.
Adjusted earnings exclude one-time items such as acquisition costs
and expenses associated with the company’s clinic management system
Janus.
Profit of this orthotic and prosthetic (O&P) company was up
10.5% to $9.5 million (or 27 cents a share), primarily led by
strong sales and accretive acquisitions.
Revenues
Revenues increased 7.1% year over year to $233.5 million in the
quarter, marginally beating the Zacks Consensus Estimate of $233
million. It led to record sales of above $1 billion for the
company, trailing 12 months.
Effective from 2013, the company has realigned its reporting
segments into two groups viz, Patient Care and Products and
Services. The former will now include Linkia, which was earlier
reported in the “Other” segment. The latter has merged the
Distribution and Therapeutic Solutions segments to effectively meet
end-market demands as well as enhance operating efficiency.
The Patient-care and Products and Services segments represented
82.7% and 17.3% of total sales, respectively, in the first quarter.
Sales from Hanger’s Patient-Care segment grew 9.5%, which includes
1.7% increase in same-center sales and a higher contribution of
$13.7 million from acquisitions. The segment was adversely affected
by severe weather conditions in the quarter along with difficult
year-over-year comparison in same center sales.
However, revenues from the Products and Services segment dropped 3%
year over year, on account of soft sales from the distribution
business, partially offset by gains in the rehabilitative solutions
franchise. Sales at the distribution wing declined due to transfer
of a number of large independent O&P customers to the Patient
Care segment in 2012 and adverse weather conditions. Moreover,
continuation of the CMS Recovery Audit Contractor (RAC) program put
additional pressure on independent O&P customers.
Margins
Gross margin increased to 71.0% from 69.4% a year ago. Operating
margin was 9.7% compared with 9.9% in the prior-year quarter.
Adjusted operating margin was 9.9% in the quarter, roughly flat
year over year.
Balance Sheet
Hanger ended the first quarter of 2013 with cash and cash
equivalents of $15.0 million, down 53.4% year over year. Operating
cash flow was $1.7 million in the quarter. Total debt increased
2.5% year over year to $518.8 million.
Guidance
Hanger reiterated its financial guidance for 2013. The company
expects revenues in the band of $1.06 billion and $1.08 billion. It
projects same center sales from its Patient Care Services segment
to grow 3% to 5%. Products & Services sales are also projected
to increase 3% to 5% in 2013.
On the earnings front, Hanger expects adjusted earnings per share
in the range of $2.02 to $2.09 (up 11.6%–15.5%) in 2013. Adjusted
earnings exclude one-time costs of 5 cent a share related to the
deployment of the company’s new patient management system. The
current Zacks Consensus Estimates for revenues and earnings per
share in 2013 are $1,070 million and $2.06, respectively.
In addition, Hanger expects to generate operating cash flows of $80
million to $100 million in 2013 and aims to increase adjusted
operating margins by 30–50 basis points. The company anticipates
capital expenditure of $40 million to $50 million.
Hanger, in its first quarter call, noted that it will continue its
acquisition program in 2013 with a target of completing
acquisitions, with aggregate annualized sales of roughly $20
million.
Our Take
Texas-based Hanger leads the orthotic and prosthetic (“O&P”)
patient care services market, operating across more than 730
patient care centers in the U.S. The company’s economies of scale
are unmatched by competition. We are impressed by the
company’s ability to grow its top as well as bottom line despite
the exposure to reimbursement uncertainties and its aggressive
acquisition strategy.
The company needs to improve performance of its sluggish
Distribution business on the back of the recent reorganizing
efforts. Headwinds from sequestration is likely to reduce bottom
line by 3 cents but the company is working on strategies to lower
its impact.
Hanger currently carries a Zacks Rank #3 (Hold). Other medical
products companies such as Conceptus (CPTS),
LeMaitre Vascular (LMAT) and
NuVasive (NUVA) appear impressive. While Conceptus
and LeMaitre carry a Zacks Rank #1 (Strong Buy), NuVasive carry
Zacks Rank #2 (Buy).
CONCEPTUS INC (CPTS): Free Stock Analysis Report
HANGER ORTHOPED (HGR): Free Stock Analysis Report
LEMAITRE VASCLR (LMAT): Free Stock Analysis Report
NUVASIVE INC (NUVA): Free Stock Analysis Report
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