Apria, Lincare, Invacare report earnings

Sunday, October 29, 2006

LAKE FOREST, Calif. - While its revenues edged up in the third quarter of 2006, Apria's earnings remained flat, the company announced Oct. 26.

Apria posted $19.3 million or 45 cents per share in net income for the third quarter of 2006 compared to $19.3 million or 38 cents per share for the same quarter the previous year. The reason for the per-share difference: Last year, the company bought back $7.3 million of its common stock and collected a $2.3 million tax benefit related to a whistleblower lawsuit settlement.

When it came to revenues, Apria reported $382.2 million for the third quarter of 2006 compared to $376.6 million for the same quarter the previous year.

Apria's three product lines-respiratory, home infusion and HME-all posted quarter-over-quarter growth rates in the third quarter of 2006: 3.3%, 6.2% and 4.7%, respectively, CEO Larry Higby stated during an earnings conference call.

"HME growth was led by 10.4% growth in our strongly rebounding rehab business," he said.

Apria, which ramped up cost-cutting measures this year, reaffirmed its sales growth estimate of 3% for the year.

During a question-and-answer session following its earnings conference call, Higby told investors that acquisitions still aren't a priority for Apria-but that may change.

"It's pretty difficult at this point in time to really get too excited about the acquisition business, because you're really not sure what reimbursement levels will be," Higby said. "If you're going to do an acquisition, you have to be able to predict a revenue steam and a margin. I think that's going to be clarified by the end of the year, and if that's the case, there are going to be some acquisitions out there that are worth looking at. The problem with some of the larger acquisitions is they have a huge debt load, which makes it hard to see how to proceed, whereas some of the small- and medium-sized ones may provide more of an opportunity."

The Clearwater, Fla.-based Lincare reported $56.2 million in net income or 57 cents per share for the third quarter of 2006 compared to $53.9 million or 52 cents per share for the same quarter the previous year. Revenues were $358 million compared to $320.1 million, a 12% increase.

Lincare acquired two businesses with annual revenues of $5 million in the third quarter of 2006. The businesses are located in Indiana and Wyoming.

Medicare's "disruptive" policies for oxygen and power wheelchair reimbursement has forced "providers to reduce their purchases and lower their inventory levels." In turn, that helped reduce the Elyria, Ohio-based Invacare's net sales for the third quarter by 4%, from $379.5 million last year to $379.5 this year.

The company released its financial results for the third quarter, which ended Sept. 30, last week. Net sales in Europe increased 2% to $113.9 million, but in North America, the company took a real beating. For example:

- Respiratory products sales decreased 15% for the quarter, largely due to slower demand in the HomeFill oxygen system product line. Sales to small providers and independents declined 34% in the quarter.
- Sales of rehab products decreased 9% in the quarter, due primarily to continuing Medicare- and Medicaid-related reimbursement issues. Sales of consumer power wheelchairs were down 17% and custom power sales were down 12%; they continue to be acutely impacted by these same reimbursement issues.
- Sales of standard products decreased by 4% for the quarter vs. last year, with a particular weakness in patient aids (canes, walkers, bath aids) due to low-cost Asian imports negatively impacting volumes.
- Distributed product sales increased 3% as a result of growth in sales to the retail sector and continuing increases in revenues from Invacare-branded product for the quarter.

As part of its ongoing restructuring to address changes in Medicare reimbursement, Invacare continues efforts to reduce manufacturing costs. That includes transferring additional manufacturing to China and increasing the Asian sourcing of products. Invacare expects the total cost of products coming from Asia to exceed $200 million in 2006, an increase of over 40% compared to 2005.