Hanger Orthopedic Group Inc.
) reported first quarter 2012 adjusted earnings of 22 cents per
share, beating the Zacks Consensus Estimate of 20 cents per share
and exceeding the year-ago adjusted earnings of 19 cents a share.
The adjusted earnings exclude the cost of a penny associated with
relocation of the company's corporate headquarters from Bethesda,
Maryland to Austin, Texas.
Profit in the reported quarter was up 21.6% to $7.6 million (or
22 cents a share), driven by healthy sales.
Revenues rose 8.8% year over year to $218.1 million in the
quarter, beating the Zacks Consensus Estimate of $213 million.
Growth was triggered by higher sales across the company's
Distribution and Patient-Care Services divisions along with
acquisitions (worth $4.4 million). This was, however, partially
offset by lower Therapeutic Solutions sales.
Patient-care services, Distribution and Therapeutic solutions
segments represented 81%, 12% and 7% of total sales, respectively,
in the first quarter. Sales from Hanger's same center Patient-Care
Services and Distribution segments grew 7.1% and 11.9%,
respectively, but Therapeutic sales dropped by $0.9 million in the
Gross margin slipped to 70.6% from 71% a year ago. Adjusted
operating margin in the quarter was 9.2% versus 9.4% in the
prior-year quarter. Adjusted operating margin excludes relocation
charges of $0.4 million.
Hanger ended the first quarter 2012 with cash and cash
equivalents of $32.2 million, up 64% year over year. Total debt was
down 2.3% to $506.1 million.
Hanger reiterated its guidance for fiscal 2012 despite
reimbursement and regulatory headwinds. The company expects
revenues in the band of $970 million and $990 million. It foresees
sales from its Patient Care Services and Distribution segments to
grow 3% to 5% in 2012. Moreover, it expects flat to modestly higher
sales in its Therapeutic Services division.
On the earnings front, Hanger expects adjusted earnings per
share in the range of $1.72 to $1.79 for fiscal 2012. Adjusted
earnings exclude costs related to the deployment of the company's
new billing system and practice management. The current Zacks
Consensus Estimates for revenues and earnings per share for 2012
are $968 million and $1.76, respectively.
Hanger expects to generate operating cash flows of $70 million
to $80 million in fiscal 2012 and aims to increase operating
margins by 20-40 basis points in its core business.
Hanger leads in the orthotic and prosthetic ("O&P") patient
care services market, operating across more than 700 patient care
centers in the U.S. The company's economies of scale are unmatched
by competition, which include notable players in the O&P space
Owens & Minor Inc
To expand its geographic presence, Hanger continues to pursue
small tuck-in acquisitions. The $155 million acquisition of ACP
added a fresh avenue for growth. The company bought eight companies
during the last fiscal for roughly $24.9 million and expects
roughly $28 million in annual sales from these acquired
Hanger is poised to achieve meaningful cost synergies from its
corporate relocation. However, we are cautious about the company's
exposure to reimbursement uncertainties and its aggressive
acquisition strategy, which has inherent risks. We currently have a
Neutral rating on the stock, which is backed by a short-term Zacks
#2 Rank (Buy).
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