By Mary Vanac
Cost reductions and a stronger U.S. dollar won the first quarter for Invacare Corp. (NYSE:IVC).
But the maker of home healthcare equipment and supplies lowered its forecast for sales growth this year to between zero and 1 percent. Its previous guidance had been between 1 percent and 3 percent. The move sent Invacare shares down more than 3 percent to $25.71 in mid-morning trading.
“Management is very pleased with our first quarter,” chairman and CEO A. Malachi Mixon told securities analysts during a Thursday morning conference call.
“It’s a solid quarter. We feel very good about the year and the guidance we’ve given the Street,” Mixon said. “There are a lot of good things going on here. We are getting our growth restored. We were disappointed in the healthcare reform bill. But we see blue sky as the economy improves and hospital admissions start improving again.”
Invacare’s first-quarter net earnings grew 30 percent to $3.1 million, or 9 cents per diluted share, up from $2.4 million, or 8 cents per diluted share, during Q1 2009. Adjusted earnings per share, excluding restructuring and debt-related charges, rose 77 percent to 23 cents from 13 cents a year ago.
Invacare has been on an aggressive path of “globalization,” that is, sourcing materials, components and manufacturing in low-cost countries to cut costs.
“[President and COO] Gerry Blouch has been driving our globalization,” Mixon told analysts. “We have not, by any stretch of the imagination, stopped reducing costs. We will take another $100 million out of costs in the next two years. We’re driving a machine that’s taking costs out.”
As a result, “we’re still showing margin expansion even with no sales growth,” Mixon said.
The company has also been paying down high-cost and convertible debt at a steady clip — $16.7 million was repaid in the first quarter alone. In 2007, the company refinanced $400 million in debt, selling $135 million worth of convertible debt and $175 million worth of high-yield debt. Until the company can pay down its high-yield debt — it has an option to do so in February 2011 — it is unlikely to make any acquisitions, Mixon said.
Net sales grew 1 percent to $402.2 million in the first quarter, from $398 million a year ago. Omitting the effects of favorable foreign currency exchange rates, though, Invacare’s sales fell 3 percent.
“Nursing homes continue to be cautious on their capital spending,” Mixon said during the conference call.
“Our customers were nervous about healthcare reform and what was going to transpire there and how they might be affected,” he said. “Some of our large customers were working on cash utilization and managing inventories.”
For instance, one large customer bids out its oxygen concentrator business every six months. This time, Invacare lost the bid.
“We walked away from some business,” Mixon said, referring to customers that are unlikely to come out winners in the ongoing Medicare competitive bidding process. “We are erring on the side of conservatism. We want solid customers.”
Invacare also has “a lot of initiatives on the way to get our sales cranked up again,” he said. “It’s going to take awhile.”
The company plans to increase its research and development spending over the next three years. It also has added incentives for general managers who boost sales.
The company expects to launch some new products, including a front wheel-drive power wheelchair, a market in which Invacare has not participated, Mixon said. And the company expects the home oxygen industry to more fully accept the “non-delivery model,” that is, customers generating their own oxygen with concentrators such as Invacare’s HomeFill system rather than taking deliveries of oxygen tanks.
