Hill-Rom Holdings, Inc. ( HRC)

F4Q 2011 Earnings Conference Call

October 27, 2011 08:00 ET

Executives

Andy Rieth – Investor Relations

John Greisch – President and Chief Executive Officer

Mark Guinan – Senior Vice President and Chief Financial Officer

Analysts

David Lewis – Morgan Stanley

Larry Keusch – Morgan Keegan

Lennox Ketner – Bank of America

Topher Orr – Goldman Sachs

Catherine Hill – Deutsche Bank

Presentation

Operator

Good morning, and welcome to Hill-Rom Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a 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 November 4, 2011. 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 would like to turn the call over to Mr. Andy Rieth. Please go ahead.

Andy Rieth – Investor Relations

Well thank you, Allie. Good morning, and thanks for joining us for our fourth quarter fiscal year 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 10-K and subsequent quarterly reports on Forms 10-Q. We plan to file our fiscal year 2011 annual report on Form 10-K in November.

Now 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 Q&A. During the 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.

Now as you listen to our remarks, we are also displaying slides that amplify our disclosure and 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 archive.

And with that, I’ll turn the call over to John.

John Greisch – President and Chief Executive Officer

Thanks, Andy. Good morning, everybody. Thanks for joining us today. Despite the challenging economic environments, particularly in Europe, we closed the year with a strong fourth quarter performance on all fronts in line with our guidance. For the full year, we achieved all the key objectives that we focused on in 2011. In light of the economic conditions in the United States and especially in Europe, I am proud of how well our teams executed our plan.

For the full year, we achieved constant currency revenue growth of 7%. We improved adjusted operating margin by 100 basis points while increasing R&D investment by nearly 10%. We also increased adjusted earnings per share by 29% following a 49% increase in 2010.

We delivered significantly improved operating cash flow of $270 million excluding the $47 million in legal settlements and we completed the acquisitions of the minority interest in our encompassed joint venture as well as our Liko distributors in France and Switzerland. As you read in our press release, we also recently received FDA approval for a new powered stretcher, which will improve our stretcher portfolio and enhance our competitiveness in this important product category. The success of our R&D and QARA organizations in getting this product approved and commercialized exemplifies our increased focus on and investment in innovation.

Let me review a few additional fourth quarter highlights. In our North America Acute Care capital business, we continue to see strong performance with our patient support systems product revenue which to remind everyone is our Bed Frame and Surface products portfolio up 30% versus last year. Despite obvious concerns over the economic and reimbursement environments, hospital capital spending in North America appears to be relatively stable as it has been throughout 2011.

Against this backdrop, our North America Acute Care capital revenue in total grew 21% compared to the fourth quarter of 2010, which was the strongest quarter of the year. We also had the highest capital order rate of fiscal 2011 during the fourth quarter and we entered 2012 with a capital backlog that is up approximately 35% compared to last year. Given the strong growth we have seen in this business during 2011, while we remain cautiously optimistic about the stability of the hospital capital spending environment, we do expect to see lower growth rates in this business during 2012.

Moving beyond North America, despite some strong performances during the quarter in several regions, the international business remains challenging for us. During the quarter, we saw low single digit constant currency revenue growth in Europe, a turnaround from the third quarter. At the same time, as expected, we saw declines in several other regions leading to an overall decline of 8% in international constant currency revenues compared to last year which as you may recall was the strongest quarter of 2010.

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