Hanger Orthopedic Group Inc.
) reported second quarter 2012 adjusted earnings of 50 cents per
share, beating the Zacks Consensus Estimate by a penny and
exceeding the year-ago adjusted earnings of 45 cents a share.
Profit in the reported quarter was up 12.7% to $17.4 million (or
50 cents a share), driven by solid sales along with controlled
Revenues rose 7.2% year over year to $251.8 million in the
quarter, beating the Zacks Consensus Estimate of $249 million. This
growth was led by higher sales across the company's Distribution
and Patient-Care Services divisions along with acquisitions (worth
Patient-care services, Distribution and Therapeutic solutions
segments represented 82.6%, 10.9% and 6.5% of total sales,
respectively, in the second quarter. Sales from Hanger's same
center Patient-Care Services and Distribution segments grew 4.6%
and 7.2%, respectively. Therapeutic sales increased by $0.3 million
in the reported quarter.
Gross margin increased to 71% from 70.8% a year ago. Adjusted
operating margin in the quarter was 14.2% versus 14% in the
Hanger ended second quarter 2012 with strong cash and cash
equivalents of $41.6 million, more than twofolds higher than the
year-ago quarter. Total debt was roughly flat year over year at
Hanger reiterated its revenue 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 with higher sales from
new contracts in the second half of 2012.
On the earnings front, Hanger has raised the lower end of its
bottom-line guidance and now expects adjusted earnings per share in
the range of $1.75 to $1.79 (earlier $1.72 to $1.79) for fiscal
2012. Adjusted earnings exclude one-time costs of 1 cent a share
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 are $981 million and $1.77,
In addition, 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 and
spend $40 to $50 million in capital expenditure. Further, Hanger
aims to continue to pursue small tuck-in acquisitions which will
roughly provide revenues of $20 million by year end.
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
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 recommendation on the stock, which carries a short-term
Zacks #2 Rank (Buy).
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