Earnings at Apria, Invacare take a dive

Sunday, April 30, 2006

LAKE FOREST, Calif. - Medicare reimbursement cuts continue to take their toll on two of the industry's biggest players, Apria and Invacare.

On April 25, Apria reported that revenues decreased to $368.1 million for the first quarter of 2006 compared to $371.9 million for the same quarter the previous year.

Two days later, Invacare reported that net earnings for the quarter, excluding a pretax charge related to restructuring, were $7.6 million vs. $13.5 million during the same period last year. Including the charge, net earnings were $5.2 million. Net sales for the quarter decreased 2% to $361.7 million vs. $370.9 million last year.

Invacare attributed the decline in performance to, among other things, continuing Medicare reimbursement pressures and uncertainties and price reductions driven by low-cost Asian product. In addition, interest expense increased due to higher interest rates.

"As a result of these negative impacts, we continue to be focused on cost reduction as our top priority," said Invacare CEO Mal Mixon.

In North America, sales of rehab products, including acquisitions, increased 5% for the quarter. Sales of standard products decreased 7% for the quarter, with particular weakness in manual wheelchairs and patient aids (canes, walkers, crutches) due to continuing low-cost Asian imports driving further price reductions.

Respiratory product sales declined 5% for the quarter. Strong sales of oxygen concentrators were offset by a decline in the HomeFill oxygen system product line, attributable to significantly reduced purchases from national providers in this year's first quarter vs. last year. Small providers and independents continued to increase their HomeFill purchases by 3%; however, this was more than offset by lower purchases from national providers. Recently announced reimbursement changes and further proposed changes in President Bush's fiscal 2007 budget have created uncertainty and negatively impacted the HomeFill revenues by causing providers to reduce capital investment in this new technology.

At Apria, net income dropped to $16.1 million or 38 cents per share for the first quarter of 2006 compared to $19.5 million or 43 cents per share for the same quarter the previous year.

Things may be on the up and up, however, at least compared to the fourth quarter of 2005. Revenues for the first quarter of 2006 were up 2.3% compared to revenues for the fourth quarter of 2005 ($359.7 million).

"We are encouraged by signs of a return of overall organic revenue growth as it started to rebound in the first quarter versus the fourth quarter, but there's still work to be done," said Lawrence Higby, Apria's CEO, in the release. "Overall, March revenues outpaced January and February and, for certain product lines, such as oxygen, nebulizers, hospital beds and two key infusion therapies, March represented the highest patient census numbers that we have experienced in the past two years."

Apria executed a number of expense savings initiatives in the first quarter of 2006 that it expects to accelerate savings in the second half of the year, the company stated.