Apria's growth takes a nose dive

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Sunday, October 16, 2005

LAKE FOREST, Calif. - Hurricane-related expenses, gas costs and reimbursement cuts for respiratory meds have squelched growth at Apria Healthcare.

The HME announced in early October that revenues for the third quarter dropped to less than 1% growth over last year. While Apria claims its oxygen and enteral lines remain strong, it concedes its DME, respiratory meds and infusion therapy lines have taken a hit.

As a result, the company downgraded its growth projections for 2005 to 2% to 3% from 5% to 6%.

The news came as no surprise to Balaji Gandhi, an analyst with Pacific Growth Equities in Boston. He has noticed that Apria has been relying on non-operating metrics to meet expectations.

"The quality of earnings is lower," he said. "Earning haven't been caused by improved sales or reduced operations costs; they've been caused by a lower tax rate or a lower debt ratio."

While he agreed hurricanes, gas prices and cuts have something to do with Apria's self-proclaimed "slowing trend," they're not the only reason, Gandhi said. The company still hasn't reported a return on the investments it made to improve operational efficiencies, including order-intake and claims-collections processes, he said.

Apria also cited discounted contractual arrangements with hospitals as a reason for the "slowing trend."

The company was expected to announce third quarter results on Oct. 25.

Apria has watched earnings fall since Jan. 1, when reimbursement cuts for respiratory drugs and other durable medical equipment went into effect. Second quarter earnings fell to $22.8 million compared to $29.1 million for the same period last year.

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