) 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 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
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.
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.
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.
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
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
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
Hanger currently carries a Zacks Rank #3 (Hold). Other medical
products companies such as
) appear impressive. While Conceptus and LeMaitre carry a Zacks
Rank #1 (Strong Buy), NuVasive carry Zacks Rank #2 (Buy).
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HANGER ORTHOPED (HGR): Free Stock Analysis
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