Invacare's earnings skyrocket, Lincare's drop

Sunday, October 25, 2009

ELYRIA, Ohio - Wall Street analysts practically gave Invacare a standing ovation last week for boosting its third-quarter earnings by 27% compared to the same period last year.

"Your margins are as high as I've ever seen them," gushed one analyst during the Oct. 22 conference call to discuss the results.

CEO Mal Mixon accepted the kudos, but he said the company still has a "long way to go."

"We're simplifying designs around the world and re-engineering product lines so we can make further purchasing savings and inventory reductions," he said. "We still have a lot of momentum going forward. I expect margins to continue to improve."

Third quarter highlights:

-    Earnings increased 27%.

-    Organic sales decreased 2.2%.

-    Debt was reduced $71.9 million.

-    Free cash flow jumped to $45 million (compared to $15.9 million for the same period last year).

Mixon also told analysts during the conference call:

On competitive bidding

The industry has become more resolute about fighting competitive bidding. The program does not begin until January 2011 so we have 14 months to fight it. CMS claims they have made changes and fixed all the problems that existed in the first round, but they've refused to tell us what the fixes are. We really don't know. Meanwhile, we're hopeful that Rep. Kendrick Meek's bill to repeal competitive bidding will collect enough signatures to get it included in healthcare reform.

On selecting provider customers carefully

Medicare reimbursement cuts have significantly weakened some HME providers. That is why Invacare has been vigilant and worked its way out of marginal accounts that, in the past, it would have continued doing business with. The company is doing all it can to make sure it has solid customers who are going to be winners.

On why respiratory sales dropped 20.2% in the third quarter

Everyone is nervous about the healthcare reform bill because things change every day. Customers are being cautious in this environment. They are not overstocking. We tend to forget that they also took a 9.5% cut this year. The national accounts sometimes will work on inventory utilization for two or three months and then open the spigots and start ordering concentrators and HomeFills.

On why profitability is up but sales are down

Invacare is very focused on its operating income, but sales being down 2% in this economy is not a poor performance. I think our receivables are in the best shape I have ever seen them. Our focus is on profits, on managing assets, on getting the bank debt repaid. We can stoke up the growth engines again. I'm not worried about growth down the road. We are producing very good results and will continue to do that.

Lincare's third-quarter income drops 32%

CLEARWATER, Fla. - Lincare's earnings may be down again, but it believes it's still better off than most other HME providers.

Lincare last week reported net revenues of $392.6 million for the quarter ended Sept. 30, 2009, compared to $405.7 million for the same period last year. Net income was $36 million vs. $53.3 million. It reported net revenues of $1.145 billion for the nine months ended Sept. 30 compared to $1.249 billion for the same period last year. Net income was $95.5 million vs. $171.7 million.

Still, CEO John Byrnes stated in a release: "As our competitors struggle to deal with the severe financial consequences of Medicare price cuts implemented this year, we continue to focus on meeting the needs of our customer in order to improve their quality of life and to help them manage their disease at home while contributing to lower overall healthcare expenditures."

Lincare's earnings, as well as those of most other providers, were impacted by: a 9.5% cut to Medicare reimbursement for certain product categories, including oxygen, that went into effect Jan. 1, 2009; a 36-month cap on Medicare reimbursement for oxygen that also went into effect Jan. 1, 2009; and reduced Medicare reimbursement for certain respiratory medications.

In all, these reimbursement changes reduced revenues in the quarter ended Sept. 30 and the nine months ended Sept. 30 by about $62.6 million and $213.5 million.

Lincare generated $254.5 million of cash from operating activities during the first nine months of 2009 and invested $84.5 million in net capital expenditures. As of Sept. 30, total debt outstanding was $477 million; cash and investments were $151.3 million; and common shares outstanding were 68 million.