) adjusted earnings rose 24% year over year to 62 cents per share
for the third quarter of 2013, comfortably beating the Zacks
Consensus Estimate of 58 cents. Adjusted net earnings surged
24.4% to $21.9 million in the quarter from $17.6 million in the
Net income of this orthotic and prosthetic (O&P) company
increased to $21.7 million or 61 cents a share from $17.3 million
or 50 cents in the year-ago period. Solid revenue gains coupled
with operating efficiency accelerated bottom-line growth.
Moreover, management claimed that the issues concerning the CMS
Recovery Audit Contractor (RAC) and other Medicare audits have
stabilized in the reported quarter.
Revenues increased 11.8% to $271.1 million, surpassing the Zacks
Consensus Estimate of $270 million. The increase was mainly
driven by growth in both the Patient Care, and Products and
Gross margin improved 80 basis points (bps) to 70.7% in the third
quarter. Operating margin was 14.7%, slightly higher than the
prior-year figure of 14.6%. Adjusted operating margin grew 30 bps
to 15.0% in the quarter. We note that on a sequential basis,
adjusted operating margin improved by a solid 150 bps.
During the third quarter, the company corrected an error in the
classification of certain components of bad debt expense.
However, it did not impact the third quarter earnings, because
lower sales as a result of the adjustment completely offset
reduced Other Operating Expenses.
The Patient Care, and Products and Services segments represented
81.6% and 18.4% of total sales, respectively, in the third
quarter. Sales from Hanger's Patient Care segment grew 10.8%,
owing to a 3.8% increase in same-center sales and a higher
contribution of $14.2 million from acquisitions.
Moreover, revenues from the Products and Services segment
increased 16.2% on the back of soft year-over-year comparisons
coupled with benefits from a one-time sale. We note that this
segment has improved sequentially. Revenues in the last two
quarters had declined on account of soft sales from the
distribution business, partially offset by modest gains in the
rehabilitative solutions franchise.
Hanger ended the third quarter with cash and cash equivalents of
$7.2 million, down 62.5% compared with $19.2 million at the end
of 2012. However, total debt decreased to $471.1 million as of
Sep 30, 2013 from $520.6 million at the end of 2012.
Cash flow from operations was $68.5 million in the first nine
months of 2013, up 16.1% from the year-ago level of $59.0
million. Capital expenditure for the same period went up 10.4% to
HGR lowered its financial guidance for 2013. The company has
lowered its revenue expectation from the range of $1.06 billion
to $1.08 billion to $1.045 billion to $1.055 billion. This
represents a year-over-year growth of 7% to 8%. The Zacks
Consensus Estimate for 2013-revenues is pegged at $1.07 billion,
which lies above the guided range.
It projects same center sales from its Patient Care Services
segment to grow 3% to 4% (earlier 3% to 5%). However, based on
strong revenue results in the third quarter, Products &
Services sales are now expected to improve slightly compared to
the earlier flat year-over-year guidance.
Hanger narrowed its adjusted earnings per share guidance to the
range of $2.08- $2.11 from the earlier range of $2.07- $2.13 for
2013. Adjusted earnings exclude one-time costs of 3 cents a share
related to the deployment of Hanger's new patient management
system. The Zacks Consensus Estimate for 2013-earnings per share
is $2.10, which lies toward the higher end of the guided range.
Moving on, management reiterated its forecast for adjusted
operating margin, which is expected to expand 20-40 bps for the
In addition, Hanger now expects operating cash flow of $90
million to $100 million (compared with the earlier guidance of
$80 million to $100 million) and capital expenditure of $35
million to $40 million (compared with the earlier outlook of $40
million to $50 million) in 2013. Management noted that it will
continue its acquisition program in 2013 aiming at completion of
acquisitions, with aggregate annualized sales of roughly $20
Despite top- as well as bottom-line beats in the third quarter,
Hanger's conservative outlook for the rest of the year is a cause
of concern. Although the smaller Products & Services segment
is benefiting from reorganization efforts, outlook for the core
Patient Care Services unit appears to be soft. We note that
management has tweaked the top end of the projected same center
sales by 1%.
However, we note the company's ability to enhance its top line by
way of acquisitions amid macroeconomic headwinds like
reimbursement uncertainties. Moreover, the company's economies of
scale are unmatched by competition.
HGR currently carries a Zacks Rank #3 (Hold). While we choose to
remain on the sidelines regarding HGR, other medical product
companies such as
Bio-Rad Laboratories, Inc.
INSYS Therapeutics, Inc.
ZELTIQ Aesthetics, Inc.
) appear impressive. All these stocks carry a Zacks Rank #1
BIO-RAD LABS -A (BIO): Free Stock Analysis
HANGER ORTHOPED (HGR): Free Stock Analysis
INSYS THERAP (INSY): Free Stock Analysis
ZELTIQ AESTHETC (ZLTQ): Free Stock Analysis
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