Cost reductions and a stronger U.S. dollar won the first quarter for Invacare Corp. (NYSE: IVC)
But the maker of home healthcare equipment and supplies lowered its sites for sales growth this year to between zero and 1 percent. Its previous guidance had been between 1 percent and 3 percent. The move sent Invacare shares down more than 3 percent to $25.71 in mid-morning trading on the New York Stock Exchange.
“Management is very pleased with our first quarter,” A. Malachi Mixon, Invacare’s chairman and chief executive, told securities analysts during a Thursday morning conference call.
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“It’s a solid quarter. We feel very good about the year and the guidance we’ve given the Street,” Mixon said. “There are a lot of good things going on here. We are getting our growth restored. We were disappointed in the healthcare reform bill. But we see blue sky as the economy improves and hospital admissions start improving again.”
Invacare’s net earnings grew 30 percent to $3.1 million, or 9 cents a diluted share, in the first quarter from $2.4 million, or 8 cents a diluted share, in the year-ago quarter. Adjusted earnings per share — a non-GAAP measurement that excludes restructuring charges, and charges and fees related to debt — rose 77 percent to 23 cents from 13 cents a year ago.
Invacare has been on an aggressive path of “globalization,” that is, sourcing materials, components and manufacturing in low-cost countries to cut costs. ” Gerry Blouch [president and chief operating officer] has been driving our globalization,” Mixon told analysts. “We have not by any stretch of the imagination stopped reducing costs. We will take another $100 million out of costs in the next five years. We’re driving a machine that’s taking costs out.”
As a result, “We’re still showing margin expansion even with no sales growth,” Mixon said.
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The company also has been paying down high-cost and convertible debt at a steady clip — $16.7 million repaid in the first quarter alone. In 2007, the company refinanced $400 million in debt, sold $135 million worth of convertible debt and $175 million worth of high-yield debt. Until the company can pay down its high-yield debt — it has an option to do so in February 2011 — it is unlikely to do acquisitions, Mixon said.
Yet net sales grew only 1 percent to $402.2 million in the first quarter from $398 million a year ago. Omitting the effects of favorable foreign currency exchange rates, though, Invacare’s sales fell 3 percent.
“Nursing homes continue to be cautious on their capital spending,” Mixon told analysts. “Our customers were nervous about healthcare reform and what was going to transpire there and how they might be affected,” Mixon said. “Some of our large customers were working on cash utilization and managing inventories.”
For instance, one large customer bids its oxygen concentrator business every six months. This time, Invacare lost the bid. “We walked away from some business,” Mixon said of some customers that are unlikely to come out winners in the ongoing Medicare competitive bidding process. “We are erring on the side of conservatism. We want solid customers.”
Invacare also has “a lot of initiatives on the way to get our sales cranked up again,” Mixon said. “It’s going to take awhile.” The company plans to increase its research and development spending over the next three years. It also has added incentives for general managers who boost sales.
The company expects to launch some new products, a front wheel-drive power wheelchair, for instance, which is a market in which Invacare has not participated, Mixon said. And the company expects the home oxygen industry to more fully accept the “nondelivery model,” that is, customers generating their own oxygen with concentrators such as Invacare’s HomeFill system rather than taking deliveries of oxygen tanks.
