Slumping sales whack Invacare

Sunday, July 31, 2005

ELYRIA, Ohio -- Invacare's share price dipped by 16% July 6 on news that lower-than-expected sales and higher freight costs would prevent the company from meeting its earnings goals for the second quarter.
It was the deepest one-day divot for Invacare in nearly two years. Two weeks later, the stock
stock had recovered several percentage points but was still trying to crest the $40 mark. The company's shares had closed July 5 at nearly $45 per share.
The company expected to miss its earnings per share by about 16 cents. Six cents of the shortfall, according to Invacare CEO Mal Mixon, could be traced to higher freight costs. He blamed 10 cents of the miss on lower revenues.
In terms of sales, Invacare had expected to grow by 6% in the second quarter, but realized a 3% gain.
"Most of it is the K0011 problem," said Mixon. "Even though the government has redefined the definition, they haven't clarified the CMN, they haven't clarified the supporting documentation, and they haven't clarified the pricing on the 49 new codes."
At Pride Mobility Products, President Dan Meuser echoed Mixon's frustration with freight costs and the K0011 power wheelchair market, calling the current level of business in the sector "unnaturally low."
Although the industry generally welcomed the recent national coverage determination on power wheelchairs, the NCD was not the last word on the subject.
"They put out a policy that looks good, smells good and feels good, but it's somewhat hollow without the regs," said Meuser.
Both Meuser and Mixon expect a rebound in the K0011 market after CMS turns out the remaining clarifications.
"We're continuing to talk to CMS, to beg and plead and lobby them to get this over with, and get the instructions out there," said Mixon. "The small guys are afraid to prescribe a chair because they are afraid they will get it denied, with the patient already in it."
The day after Invacare's bad news, Sunrise Medical issued a buoyant press release of its FY 2005 results. Sunrise, a privately held company that's under no obligation to publicly report its financials, said its North American sales jumped by 6% over the previous year, largely thanks to the success of its Quickie wheelchairs and DeVilbiss respiratory products.
"Sales for rehab power products were particularly strong showing a 13% annual increase," the release stated.
The release promptly rubbed salt in the wounds of Invacare's second quarter. An official reacted to its rivals' news by pointing out that Invacare's sales for the preceding four quarters was 8.8%
At the same time Invacare is dealing with stalled sales, the company is also lowering its power wheelchair pricing to remain competitive with other chairs coming in from China, said Mixon. But, while the top line has changed, the company's costs have not fallen as quickly. In response, Mixon is promising more manufacturing in China.
"In the next six months, you are going to see a tremendous step-up," he said. "The plants are there, and the volume is growing daily so we'll see a lot of cost improvement."