Hill-Rom Holdings, (

HRC

)

Earnings Conference Call

July 28th, 2011, 08:00 am ET

Executives

John Greisch - President and CEO

Mark Guinan - Chief Financial Officer

Blair A. Reith - Vice President of Investor Relations

Analysts

Brian Kennedy – Wells Fargo

Lawrence Keusch - Morgan Keegan

Matt Miksic - Piper Jaffray

Greg Soffer - Goldman Sachs

Lennox Ketner – Bank of America

Presentation

Operator

(Operator Instructions) Now I'd like to turn the call over to Mr. Andy Reith, Vice President of Investor Relations. Please go ahead.

Blair A. Reith

Compare to:
Previous Statements by HRC
» Hill-Rom Holdings, Inc. F09Q01 (Qtr End 12/31/08) Earnings Call Transcript
» Hill-Rom Holdings, Inc. F4Q08 (Qtr End 9/30/08) Earnings Call Transcript
» Hill-Rom Holdings Inc. F3Q08 (06/30/08) Earnings Call Transcript
» Hill-Rom Holdings, Inc. F2Q08 (Qtr End 03/31/08) Earnings Call Transcript

Thank you, Operator, good morning and thanks for joining us for our third quarter fiscal 2011 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 10K and subsequent quarterly reports on forms 10Q. We plan to file our 10Q 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 have scheduled and hour in order to accommodate our prepared remarks and leave plenty of time for 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 part of the archives and I'll turn the call over to John.

John Greisch

Thanks, Andy, good morning everybody and thanks for joining us today. As you saw in our press release the third quarter was one of mixed results for the company. We are pleased with our overall results this quarter where we delivered mid-single digit constant currency revenue growth. Earnings growth over a particularly strong third quarter last year and strong growth and operating cash flow however, following a very strong first half of the year we encountered some head wins this quarter particularly in our international operations. As many of you know the third quarter tends to be our seasonally weakest quarter of the year and this year is no exception. Consistent with the trends of the past several quarters we saw continued strength with double digit growth in our North American Acute Care and Respiratory Care Businesses.

We also saw a decline in several of our international markets specifically Europe which represents about 70% of our international revenue. Despite weaker results internationally, a slightly lower growth margins for the quarter over all, we delivered strong results even after taking into account the 23% increase in R&D spending for the quarter. And we delivered a 31% increase in operating cash flow. Our outlook for the full year calls for approximately 7% constant currency revenue growth and a 28% to 31% percent increase in adjusted earnings per share along with strong cash flow performance. Mark will cover all of this in more detail shortly.

We also reported and after tax charge of $30 million for the potential settlements of a matter with the United States Government involving the period between 1999 and 2007. This matter relates to the companies interpretation to certain reimbursement regulations. We've been working with the Office of Inspector General for Health and Human Services for some time and we have recently reached an agreement in principal on the financial terms of a settlement which prompted us to vote the charge. A settlement however remains contingent on the final negotiation of an acceptable corporate integrity agreement.

Looking at the quarter overall, while we were please with the strong results, we continue to experience in North America Acute Care, we have seen declines in our international operations as the macro challenges in Europe are impacting our results more than we have seen in the past. We remain cautious with respect to our international outlook in the near term, particularly in Europe. We also experienced a decline in our operating margin this quarter due to a number of factors which Mark will cover in more detail in his comments. We’re committed to the long-term goals we articulated at our investor conference in May and as seen in our full-year outlook, we expect to deliver on all of our key initiatives for 2011 despite an increasingly challenging external environment in several of our key markets.

Turning to specific highlights for the quarter, we grew overall revenue 7% or 4% in constant currency. This is driven primarily by 11% growth in our North America Acute Care business along with a solid contribution from our Respiratory Care business which achieved high teens revenue growth during the quarter. Highlights in our North America Acute Care business for the quarter include the following: 16% growth in capital sales, a 21% growth in patient support systems sales bringing year-to-date growth in this product category to 27%, a year over year increase in capital orders for the seventh quarter in a row, and over 20% increases in order backlog relative to last year. This is the second highest level since we became a stand-alone public company, the highest being last quarter.

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