Invacare lowers earnings expectations
December 27, 2004
ELYRIA, Ohio - Â Ongoing troubles with power wheelchair reimbursement and slower purchasing by home care providers prompted Invacare to lower its earnings per share guidance for the fourth quarter of 2004 and for 2005.
The company said HME providers were making fewer equipment purchases as they braced for the impact of FEHBP-based cuts slated for Jan.
Invacare said recent Medicaid pressures, especially for higher-margin custom power wheelchairs and custom manual, have also put an “unanticipated drag on sales.”
Attempts by Invacare to offset the weaker-than-expected sales failed to generate the volumes expected.
Consequently, Invacare has lowered earnings per share guidance for the fourth quarter of 2004 from the previous range of $0.75 to $0.80 to a new range of $0.60 to $0.65.
Net sales for the quarter will likely increase by approximately 12% versus last year. Foreign currency is expected to account for three percentage points of the net sales increase, while acquisitions will likely contribute an additional ten percentage points for the quarter.
While CMS revamps its power wheelchair coverage guidelines, Invacare said its reduction in sales of PWCs have mirrored the 40-50% drop in Medicare’s expenditures for power chairs.
Given these trends, combined with the confusion likely to result from Medicare's plan to expand coding of the power wheelchair reimbursement system from 4 codes to 40 codes in 2005, Invacare has lowered its guidance of $3.00 to $3.15 for 2005 earnings per share to $2.75 to $2.90.
In response, Invacare is taking steps to improve the benefits from internal productivity programs and from the acquisition of WP Domus GmbH ("Domus").
Also, Invacare plans to transfer additional production to China and to increase local sourcing of components in order to lower costs further over the next year.
Further, Invacare plans on manufacturing more components in China than originally projected, including the bases for consumer power wheelchairs. Given the weakness in the consumer power wheelchair segment, Invacare intends to use Chinese manufacturing to help offset some of the profitability reduction resulting from the low sales volume.