Hill-Rom Holdings, Inc. (HRC)
F3Q2012 Results Earnings Call
July 26, 2012 8:00 AM ET
Andy Rieth – Vice President, Investor Relations
John Greisch – President and CEO
Mark Guinan – Vice President and CFO
Jon Demchick – Morgan Stanley
Lennox Ketner – Bank of America
Constantine – Raymond James
Topher Orr – Goldman Sachs
Matt Miksic – Piper Jaffray
Steve O’Neil – Hilliard Lyons
Gary Lieberman – Wells Fargo Securities
Good morning. And welcome to the Hill-Rom Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session, and instructions will be given at that time.
As a reminder, this conference call is being recorded and will be available for telephonic replay through August 2, 2012, see Hill-Rom’s website for access information. The webcast will also be archived in the Investor Relations section of Hill-Rom’s website, www.hill-rom.com.
If you choose to ask a question today, it will be included in any future use of this recording. Also note that any recording, transcript or other transmission of the text or audio is not permitted without the written consent of Hill-Rom. (Operator Instructions)
Now, I’d like to turn the call over to Mr. Andy Rieth, Vice President, Investor Relations.
Thank you, Shannon. Good morning. And thanks for joining us for our Third Quarter Fiscal Year 2012 Earnings Call.
Before we begin, I’d like to provide our usual caution that this morning’s call may contain forward-looking statements such as forecasts of business performance and company results, as well as expectations about the company’s plans and future initiatives. Actual results may differ materially from those projected.
For an in-depth discussion of risk factors that could cause actual results to differ from those contained in forward-looking statements made on today’s call, please see the risk factors in our annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. We plan to file our 10-Q for the third quarter later this week.
Joining me on the call today will be John Greisch, President and CEO of Hill-Rom; and Mark Guinan, Hill-Rom’s Senior Vice President and Chief Financial Officer. The usual ground rules will apply to make the call more efficient. We scheduled an hour in order to accommodate our prepared remarks and leave plenty of time for your Q&A.
During Q&A, please limit your inquiries to one question plus a follow-up per person. If you have additional questions, you may rejoin the queue. As you listen to our remarks, we are also displaying slides that amplify our disclosure. I would encourage you to follow along with us. The slides were posted last night on our website and will also be a part of this archive.
With that, I’ll turn the call over to John.
Thanks Andy. Good morning, everybody, and thanks for joining us today. We’ve a lot to cover this morning. As you saw in our press release, we revised our overall revenue and earnings outlook downward due to the weaker orders in our North American capital business the past several months and weaker order expectations for the remainder of the year. At the same time, we delivered earnings in line with our guidance for the third quarter and last night announced an exciting acquisition for our company.
Let me start with the few comments on the quarter. Our third quarter adjusted earnings per share were up 19%, in line with our guidance but on lower revenue than we anticipated.
Our guidance for constant currency revenue growth in the third quarter was 11% to 13%, compared to the 9% we achieved. By far, the biggest factor in the revenue shortfall was capital sales in North American Acute Care, our largest business unit where revenue declined 5%.
For the first half of the year, we saw capital growth of over 3%. Well, our U.S. Patient Support Systems business declined 11% for the quarter. We believe this to be better than industry performance.
As we discussed on our last earning calls, we had a slight sequential increase in North American Acute Care capital orders during the second quarter and we expected to see continued order growth in the second half of the year in line with our historical patterns.
Second half order improvement has not materialized as we expected. For the third quarter, we experience a declined in order sequentially and year-over-year and we ended the quarter with the backlog down 20% from the prior year.
We also experienced delays of several large orders that were expected to ship in the third quarter, but are now expected to ship in Q4. And unfortunately, this has become a more common trend as we have seen more order and delivery delays over the past several months than we had in the last two years.
It is clear that the capital spending environment in North America has become more challenging throughout 2012 and we have adjusted our fourth quarter guidance accordingly.
With tightened capital budgets and in many cases, delays in decision making around capital appropriation, we are not expecting the environment in North America to improve for the foreseeable future.
I’m disappointed with our third quarter revenue shortfall and with reducing our outlook for the fourth quarter. We have discussed how lumpy this business is and in today’s environment, it has become even more challenging to estimate the timing of our customer’s capital decisions.
We will continue to monitor customer spending patterns as best we can. However, just as we saw upside volatility when the North American Acute Care capital business was increasing over 18% in 2011, the volatility in this business will be a challenge in a down capital market as well.
We expect the fourth quarter to be particularly challenging since the comparable period last year was unusually strong. And while it is premature to provide guidance for next year, it is difficult to foresee a substantial improvement in the macro economic and healthcare environments currently influencing our customer’s capital spending.
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