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Why Is Hill-Rom (HRC) Up 7.3% Since Last Earnings Report?

It has been about a month since the las t earnings report for Hill-Rom (HRC). Shares have added about 7.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Hill-Rom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recen t earnings report in order to get a better handle on the important drivers.

Hill-Rom's Earnings Gain From Launches in Q1

Hill-Romdelivered first-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.02, after excluding certain special items, reflecting an increase of 10.9% from the year-ago quarter. The bottom line beat the Zacks Consensus Estimate of 98 cents by 4.1%.

Starting from the fiscal first quarter, Hill-Rom has adopted a new revenue recognition accounting standard, ASC 606, on a modified retrospective basis. These results reflect the impact of this move by the company.

However, before the adoption of ASC 606 and on a comparable basis, Hill-Rom's adjusted EPS was $1.03, up 12% year over year. The figure was above the company's projected range of 97-99 cents as well.

The strong performance was backed by a solid core revenue rise, continued margin expansion and growth-driving strategic investments. This in turn marked the 14th consecutive quarter of double-digit earnings growth for the company.

Revenue Details

Per management, the adoption of ASC 606 on a comparable basis did not have a material impact on revenue growth for the company or by reporting segment in the fiscal first quarter. Revenues per ASC 606 in the fiscal first quarter came in at $683.5 million. The top line exceeded the Zacks Consensus Estimate of $675 million by 1.3% on sturdy growth in core business.

Before the adoption of ASC 606 and on a comparable basis, revenues in the fiscal first quarter rose 2.2% year over year to $684.2 million (up 3.1% at constant exchange rate or CER).

Geographically, U.S. revenues grew 3.6% in the reported quarter while the metric outside the United States declined 0.9% (up 2.1% at CER). Core revenue growth (after excluding foreign currency, divestitures, and non-strategic assets the company may exit, including the Surgical Solutions international OEM business) was 6%, exceeding the company's guidance of roughly 4% growth.

Segmental Performance

Before the adoption of ASC 606 and on a compared basis, in the quarter under review, Patient Support Systems revenues inched up 2.3% year over year (up 3.3% at CER) to $342.2 million. This segment's domestic revenues were up 2.2%, representing solid performance by all key capital product categories. This is the third consecutive quarter of double-digit growth in med-surg bed systems, Clinical Workflow Solutions and U.S. safe patient handling equipment. Outside the United States, core Patient Support Systems revenues rose 2.6% (up 6% at CER).

Revenues at the Front Line Care segment increased 3.7% to $232.9 million (up 4.5% at CER). The upside was driven by contribution from new products in respiratory care, vital signs monitoring and the Vision Care portfolio. Domestic revenues grew 5% with 0.6% rise in international revenues (up 3.1% at CER). Globally, the company witnessed solid performance across Europe, Latin America and the Asia Pacific.

The Surgical Solutions segment revenues slipped 1.4% to $109.1 million.

Outlook Updated for ASC 606

Hill-Rom has updated its fiscal 2019 adjusted earnings per share guidance in order to include the impact of ASC 606 adoption. The updated 2019 financial guidance compares to the 2018 financial results modified to reflect ASC 606.

Adjusted EPS for the year is now expected in the $4.98 to $5.06 range. This reflects the ASC 606 earnings impact of 10 cents per diluted share. The Zacks Consensus Estimate for fiscal 2019 earnings stands at $5.13, above the company's guided band.

The company continues to expect revenue growth of 1-2% on a reported basis (up 2-3% at CER) and core revenue rise of 4-5%. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.89 billion.

For the second-quarter fiscal 2019, under ASC 606, Hill-Rom expects revenues to remain flat on a reported basis (or up 2% at CER). Core revenues are likely to increase 4% year over year. The company estimates adjusted earnings per share of $1.09-$1.11. The Zacks Consensus Estimate for second-quarter earnings is $1.22 on revenues of $714.4 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.92% due to these changes.

VGM Scores

Currently, Hill-Rom has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Hill-Rom has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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