Earnings: Lincare 'amazes,' Invacare stays steady

Thursday, April 22, 2010

CLEARWATER, Fla. – Lincare last week reported a whopping 68% increase in net income and a 10.3% increase in net revenues for the first quarter, a possible sign, industry watchers say, that it has tightened its belt even further to prepare for national competitive bidding.

“They managed to keep their costs basically flat year over year, while doing 10%-plus more business,” said Rick Glass, president of Steven Richards & Associates, a Tarpon Springs, Fla.-based M&A firm. “They are getting ready for competitive bidding and for reimbursement to continue to drop.”

Lincare reported net income of $43.6 million for the quarter ended March 31, 2010, compared to $26 million for the same period last year. It reported net revenues of $410 million vs. $371.7 million.

Industry watchers point out that Lincare’s cost of goods and services went up only 8.1% and its total expenses went up only 0.4% in the first quarter of 2010 compared to the same period last year.

“That tells me they’ve squeezed concessions out of their manufacturers and improved delivery efficiencies,” Glass said. “It also tells me they’re continuing to cut service levels and streamline their processes to be able to live with lower rates.”

While industry watchers called Lincare’s 68% increase in net income “amazing” and “tremendous,” they say they’re not entirely surprised.

“They run leaner and meaner than anyone, and they continue to do so successfully,” said Bob Leonard, managing director of The Braff Group, a Pittsburgh-based M&A firm. “Wall Street loves them because they think, as things move further down the pike, they’re in the best position of anyone to benefit. They think as competitive bidding rolls out and it gets tougher for independents, Lincare’s going to pick up a lot of market share.”

Lincare’s certainly off to a good start in 2010 compared to 2009. The provider reported net income of $136.1 million for 2009 compared to $227.3 million for 2008, a 40% drop. Net revenues were $1.55 billion vs. $1.665 billion, a 7% drop.

In large part, Lincare took a hit in 2009 due to various Medicare reimbursement cuts, including a 9.5% cut for oxygen therapy and other HME that went into effect Jan. 1, 2009.

The day Lincare released its earnings, its stock rose to $48.10 compared to $21.36 for the same time last year.

“As the year progresses, we look forward to building on our market share gains and driving earnings growth through organic expansion, selective acquisitions and other strategic opportunities,” stated CEO John Byrnes. “We remain confident and passionate that the services we provide are an integral part of the solution to rising healthcare costs.”

Invacare’s sales drop, but margins jump

ELYRIA, Ohio – Invacare’s first quarter sales dropped 3.1% compared to last year, but the company boosted its gross margins by 2% thanks to the following: favorable commodity costs, freight and manufacturing cost reductions, higher margin customers and lower warranty expenses.

Highlights from the company’s first quarter financials include:

-    Sales of respiratory products decreased by 36.4%, primarily due to reduced sales of concentrators to national providers, including the loss of a large customer, and reduced HomeFill Oxygen System sales to national providers and most other customers.

-    North American HME net sales decreased 6.3% to $175 million compared to $186.7 million last year. A decline in respiratory product sales drove the decline, which was partially offset by increased standard and rehab product line sales.

-    Invacare Supply Group’s net sales increased 6.7% to $69.7 million compared to $65.3 million last year. The company attributed the increase to more sales to national providers, especially diabetic and incontinence products.

-    Free cash flow hit $5.8 million compared to a negative free cash flow of $4.5 million last year.

-    The company retired $15.8 million in debt.

-    Adjusted earnings before income taxes were $10.7 million compared to $6.2 million last year.

-    European net sales increased 8.6% to $117.7 million.

-    Asia/Pacific net sales increased 18.3% to $17.5 million.

-    Days sales outstanding were 56 days compared to 60 days last year and 52 days at the end of 2009.