Hill-Rom beats by $0.10, reports revs in-line with preannouncement; guides Q2 EPS below consensus; raises FY18 EPS above consensus and long-term earnings growth and FCF guidance due to tax reform; CEO to retire (91.01)
- Reports Q1 (Dec) earnings of $0.92 per share, $0.10 better than the Capital IQ Consensus of $0.82; revenues rose 5% year/year to $669.7 mln vs the $670 mln two analyst estimate, or 3% on a constant currency basis. Domestic revenue of $453 million grew 2%, while revenue outside the U.S. of $217 million advanced 13%, or 7% on a constant currency basis. Hill-Rom's core revenue advanced 2% on a constant currency basis, exceeding the co's guidance. Core revenue excludes FX, divestitures, other non-strategic assets the co may exit, and Mortara.
- Co issues downside guidance for Q2, sees EPS of $1.00-1.02, excluding non-recurring items, vs. $1.04 Capital IQ Consensus Estimate.
- Co issues upside guidance for FY18, raises EPS to $4.57-4.65 from $4.22-4.30, excluding non-recurring items, vs. $4.55 Capital IQ Consensus Estimate.
- John J. Greisch, 62, president and chief executive officer, has informed the board of directors of his intention to retire from Hill-Rom during the company's fiscal third quarter. At the effective time of the retirement, Mr. Greisch will also step down from the board of directors of the company. Hill-Rom's board of directors has initiated a search process to identify a successor for Mr. Greisch, which is expected to be completed during Hill-Rom's fiscal third quarter. The process will include a review of both internal and external candidates.
- Based on a preliminary assessment of new U.S. tax reform legislation, Hill-Rom expects a positive impact on its adjusted effective tax rate and adjusted earnings, and is updating its 2020 financial outlook. The tax-reform benefit is expected to result in an estimated adjusted effective tax rate of ~24 percent going forward, and Hill-Rom now expects to grow adjusted earnings per share in the 12 to 14 percent range on a compound annual basis through 2020. This compares to the company's prior guidance of growth in adjusted earnings per share of 10 to 12 percent on a compound annual basis through 2020. In addition, the company now expects to generate cumulative operating cash flow of ~$1.2 billion and cumulative free cash flow of ~$850 million over the next three years. Hill-Rom continues to expect reported revenue growth (on a constant currency basis) to be in the 3 to 4 percent range on a compound annual basis from 2017 through 2020. The company also continues to expect to accelerate core revenue growth (on a constant currency basis) to the 4 to 5 percent range on a compound annual basis. Core revenue adjusts for recent divestitures and other non-strategic assets the company may exit before 2020, with 2017 annual revenue of ~$100 million.
- Hill-Rom is reaffirming its commitment to drive continued margin expansion, targeting an adjusted gross margin of ~50 percent and adjusted operating margin in the 19 to 20 percent range by 2020. Expansion is expected to be driven by product mix benefits, margin-accretive new product revenue of more than $350 million by 2020 and ongoing business optimization initiatives as previously announced. The company continues to expect to drive ~$50 million in pre-tax business optimization savings over the next several years, a portion of which will be reinvested to align resources with key priority growth areas, expand internationally and enhance global capabilities across the business.