) reported earnings of 50 cents per share for third quarter of
2012 were in line with the Zacks Consensus Estimate. However, it
exceeded the year-ago adjusted earnings of 46 cents a share (up
8.7%). Adjusted earnings exclude one-time items such as
acquisition costs and expenses associated with the relocation of
the company's headquarters in 2011.
Profit in the reported quarter was up 12.3% to $17.3 million (or
50 cents a share), primarily led by higher revenues along with
Revenues increased 3.5% year over year to $243.5 million in the
quarter, missing the Zacks Consensus Estimate of $250 million.
Patient-care services, Distribution and Therapeutic solutions
segments represented 82.3%, 11.2% and 6.5% of total sales,
respectively, in the third quarter. Sales from Hanger's
Patient-Care Services segment grew 4%, which includes 1% increase
in same- center sales and a higher contribution of $5.8 million
from acquisitions. Revenues from the Distribution segment grew
3.5% year over year. However, Therapeutic sales dipped $0.4
million in the reported quarter.
Gross margin inched down to 70% from 70.5% a year ago. Adjusted
operating margin in the quarter was 14.7% versus 13.5% in the
Hanger ended the third quarter of 2012 with cash and cash
equivalents of $55.6 million, up 77% year over year. Total debt
edged up 0.3% to $509 million.
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
projects sales from its Patient Care Services segment to grow 3%
to 5% and Distribution to increase 3% to 7% (earlier 3%-5%) for
On the earnings front, Hanger reiterated its bottom-line guidance
and expects adjusted earnings per share in the range of $1.75 to
$1.79 for 2012. Adjusted earnings exclude one-time costs of 1
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 for 2012 are $984 million and $1.78, respectively.
In addition, Hanger expects to generate operating cash flows of
$70 million to $80 million in 2012 and aims to increase operating
margins by 20-40 basis points in its core business. It
anticipates capital expenditure of $35 million to $45 million
(earlier $40 million to $50 million).
Further, Hanger reported that till October 2012, it had made
year-to-date small tuck-in acquisitions generating annualized
revenues of $35.6 million. This exceeded the company's previously
announced goal to generate revenues of $20 million through
acquisitions by year end.
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, which includes notable players in
the O&P space such as
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 rating).
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