) adjusted earnings of 58 cents per share for the fourth quarter
of 2012 were 2 cents above the Zacks Consensus Estimate. Adjusted
earnings exclude one-time items such as acquisition costs,
certain tax benefits and expenses associated with the relocation
of the company's headquarters in 2010 and the company's clinic
management system ("Janus").
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Profit in the reported quarter was up 21.1% to $21.8 million (or
62 cents a share), primarily led by accretive acquisitions along
with controlled expenses.
For 2012, adjusted earnings of $1.81 per share also exceeded the
Zacks Consensus Estimate of $1.78. Profit (as reported) climbed
16.5% year over year to $64.1 million (or $1.84 a share).
Revenues increased 9.7% year over year to $272.2 million in the
quarter, beating the Zacks Consensus Estimate of $268 million.
The growth was powered by higher sales across all three segments
and acquisitions. The Patient-care services, Distribution and
Therapeutic Solutions segments represented 84.2%, 9.6% and 6.2%
of total sales, respectively, in the fourth quarter.
Sales from Hanger's Patient-Care Services segment grew 10.5%,
which includes 4.7% increase in same-center sales and a higher
contribution of $12.0 million from acquisitions. Revenues from
the Distribution segment grew 5.1% year over year. We also note
the turn-around in Therapeutic sales, which increased 6.2% in the
For the full year, revenues of $985.6 million (up 7.3%) also
surpassed the Zacks Consensus Estimate of $981 million.
Gross margin inched up to 71.3% from 71.1% a year ago. Operating
margin was 14.3% compared with 13.8% in the prior-year quarter.
Adjusted operating margin increased 40 basis points to 14.6% in
the quarter, led by solid sales in the Patient Care segment along
with controlled expenses.
Hanger ended the fourth quarter of 2012 with cash and cash
equivalents of $19.2 million, down 55.2% year over year. Total
debt increased 2.5% to $520.6 million.
Hanger provided 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%. Distribution as well as Therapeutic
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 $1,041 million and $2.00, respectively.
In addition, Hanger expects to generate operating cash flow of
$80 million to $100 million in 2013 and aims to increase adjusted
operating margins by 30-50 basis points and anticipates capital
expenditure of $40 million to $50 million.
Hanger, in its fourth-quarter call, noted that it will continue
its acquisition program in 2012 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 740
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
acquisition strategy, which has inherent risks.
Hanger currently carries a Zacks Rank #2 (Buy). Other large-cap
medical products companies such as
Edwards Lifesciences Corp.
), which carry a Zacks Rank #2 (Buy), appear impressive.