Hill-Rom Reports Strong Fiscal Fourth Quarter and Full-Year 2018 Financial Results

Hill-Rom Holdings, Inc. announced financial results for its fiscal fourth quarter and full-year ended September 30, 2018, and provided its fiscal 2019 financial outlook. For the fiscal fourth quarter, Hill-Rom reported earnings of USD 1.33 per diluted share compared to USD 1.03 per diluted share in the prior-year period. On an adjusted basis, excluding special items, earnings of USD 1.63 per diluted share rose 23 percent from USD 1.32 per diluted share in the prior-year period, exceeding the company’s previously-issued guidance of USD 1.50 to USD 1.53 per diluted share. These financial results reflect solid core revenue growth, operating margin expansion and a lower tax rate, which includes the impact of tax reform legislation and an incremental benefit from stock-based compensation (of USD 0.10 per diluted share). Adjustments to reported earnings are detailed in the reconciliation schedules provided.

“We are very pleased with the momentum generated by our core business and strong financial results in the fourth quarter,” said John P. Groetelaars, Hill-Rom’s president and chief executive officer. “Our performance reflects the diversity of our portfolio, strong new product contributions, and solid execution in driving sustainable revenue growth and double-digit growth in adjusted earnings per share, while delivering on our long-range financial objectives.”

Fiscal fourth quarter 2018 financial results

In the fiscal fourth quarter, Hill-Rom’s worldwide revenue of USD 759 million increased 3 percent compared to the fiscal fourth quarter of last year, on both a reported and constant currency basis. Domestic revenue of USD 544 million advanced 7 percent. Revenue outside the US of USD 215 million declined 6 percent, or 4 percent on a constant currency basis. Hill-Rom’s core revenue increased more than 4 percent on a constant currency basis, as the company continued to capitalize on several new product introductions from across the portfolio. Core revenue excludes foreign currency, divestitures and non-strategic assets the company has exited.

By reporting segment:

Patient Support Systems: Patient Support Systems revenue of USD 380 million increased 3 percent on a reported and constant currency basis. Core revenue accelerated to 6 percent, primarily the result of double-digit growth in key product categories, including med-surg bed systems, Clinical Workflow Solutions and safe patient handling equipment.

Front Line Care: Front Line Care generated revenue of USD 259 million, an increase of 5 percent on a reported basis, and 6 percent on a constant currency basis, driven by contributions from new products in vital signs monitoring, respiratory care and the vision care portfolio.

Surgical Solutions: Surgical Solutions revenue of USD 120 million declined 1 percent on a reported and constant currency basis, reflecting a decline in non-strategic products, including lower international OEM revenue.

Gross margin in the fourth quarter of 49.6 percent improved 50 basis points compared to the prior year, and operating margin of 14.8 percent was 60 basis points lower than the prior year. On an adjusted basis, gross margin expanded by 30 basis points to 49.6 percent and operating margin improved by 120 basis points to 20.5 percent. Adjustments to gross margin and operating margin are detailed in the reconciliation schedules provided.

Fiscal full-year 2018 financial results

• For fiscal 2018, Hill-Rom reported earnings of USD 3.73 per diluted share, compared to USD 1.99 per diluted share in the prior-year period. On an adjusted basis, excluding special items, earnings of USD 4.75 per diluted share rose 23 percent from USD 3.86 per diluted share in the prior-year period.
• Worldwide revenue of USD 2.85 billion increased 4 percent compared to the prior year, or 2 percent on a constant currency basis. Domestic revenue of USD 1.96 billion advanced 4 percent. Revenue outside the US of USD 892 million increased 4 percent, and was comparable to the prior year on a constant currency basis.
• Hill-Rom’s core revenue grew 3 percent on a constant currency basis. Core revenue excludes foreign currency, divestitures, non-strategic assets the company has exited, and Mortara prior to the anniversary date of the acquisition.
• Gross margin of 49.0 percent expanded 90 basis points compared to the prior year, and operating margin improved 20 basis points to 10.2 percent. On an adjusted basis, gross margin expanded by 70 basis points to 49.0 percent and operating margin improved by 100 basis points to 17.3 percent.

2018 highlights 

Supporting the company’s strategies and financial performance were several achievements aimed at advancing Hill-Rom’s innovation, transforming the portfolio, and delivering sustainable value to shareholders. Highlights include:

• Achieving over USD 300 million in new product revenue during fiscal 2018.
• Advancing Hill-Rom’s Vision for All campaign by enhancing awareness and promoting the early detection of amblyopic risk in children and other vision conditions in adult patients with the Spot™ Vision Screener; and making diabetic retinopathy screening simple and affordable in the primary care setting with the Welch Allyn RetinaVue 100 Imager.
• Expanding the company’s clinical workflow solutions and communication platforms with the limited release of LINQ mobile, a smartphone application that securely connects members of the care team to each other, to their patients, and to patient information in real-time.
• Introducing the TruSystem 7500 MR Neuro Surgical Table, which integrates with the IMRIS MR Neuro tabletop to support better patient treatment and optimize the surgical workflow.
• Optimizing the product portfolio with the divestiture of assets related to the third-party rental business, and wind-down of the third-party surfaces business.
• Finalizing the company’s business optimization plans focused on driving operating efficiencies, improving the cost structure, and generating approximately USD 50 million in pre-tax savings over the next several years. This initiative provides the opportunity to reinvest savings, and align resources with key priority growth areas in new products and emerging market expansion.
• Generating operating cash flow for the year of USD 395 million, an increase of 27 percent, reducing debt by USD 337 million, and returning USD 66 million to shareholders in the form of dividends and share repurchases.

“We are proud of our 2018 accomplishments and the dedication demonstrated by our employees, who are focused on our mission of enhancing outcomes for patients and caregivers,” Groetelaars continued. “As we continue with Hill-Rom’s transformation, we enter 2019 with confidence in our ability to deliver core revenue growth acceleration, margin expansion and enhanced profitability with innovative healthcare solutions for our customers and their patients.”

Fiscal 2019 financial outlook

For fiscal 2019, Hill-Rom expects revenue to increase 1 to 2 percent on a reported basis, 2 to 3 percent on a constant currency basis, and core revenue to increase 4 to 5 percent. Core revenue excludes foreign currency, divestitures, and non-strategic assets the company may exit, including the Surgical Solutions international OEM business. Hill-Rom expects adjusted earnings, excluding special items, of USD 5.08 to USD 5.16 per diluted share and approximately USD 430 million in operating cash flow. For the fiscal first quarter 2019, Hill-Rom expects revenue to increase approximately 1 percent on a reported basis, approximately 2 percent on a constant currency basis, and core revenue to increase approximately 4 percent. The company expects adjusted earnings, excluding special items, of USD 0.97 to USD 0.99 per diluted share. Hill-Rom’s fiscal full-year 2019 and first quarter guidance does not reflect the impact of the new accounting standard ASC 606, to allow for consistency and comparability against historical results.

Adoption of ASC 606

Beginning in the fiscal first quarter of 2019, Hill-Rom will adopt ASC 606, the new revenue recognition accounting standard, on a modified retrospective basis. Adoption of the new accounting standard is not expected to have a material impact on the company’s 2019 revenue growth, margin expansion, or adjusted earnings per diluted share growth. The company’s 2018 restated financial schedules will be made available when Hill-Rom reports its fiscal first quarter 2019 financial results. The company will also provide a supplemental reconciliation of first quarter results under the new standard and update its fiscal 2019 financial guidance to reflect ASC 606. The preliminary assessment of the impact includes a reduction of 2018 revenue of up to USD 20 million and a reduction in adjusted earnings of up to USD 0.10 per diluted share. – Medical Buyer Bureau