Invacare Corp. (NYSE:IVC) is taking steps — notably, reducing and refinancing its debt — to be poised to make acquisitions and return to historic sales growth rates.
When might those things happen? Executives of the Elyria, Ohio-based company won’t say.
“Since much of the market, particularly outside the United States, is dependent on government spending, I’d say there’s a fair amount of uncertainty, right now,” said interim CEO Gerald Blouch on a conference call today.
Prior to the call, Invacare said its net earnings grew 16 percent to $15.6 million, or 48 cents a diluted share, in the third quarter from the year-ago quarter, largely the fruits of restructuring in the last several years. Sales, however, grew less than 1 percent to $437.5 million in the recent quarter.
Invacare also narrowed and slightly bumped up previous 2010 guidance for earnings per share, free cash flow and sales growth. The upward revisions weren’t enough for Invacare shareholders. The company’s shares were down 1.7 percent to $26.74 during noon-hour trading on the New York Stock Exchange.
In addition to government reimbursement and credit market uncertainties, “the rate of change in the healthcare marketplace is increasing,” said Blouch, Invacare’s president and chief operating officer who took the company’s top spot in May after longtime chairman and chief executive, A. Malachi Mixon III, had a mild stroke.
“It’s not just healthcare reform,” he said. “You’ve got healthcare agencies consolidating, getting more efficiencies. You have more [contract] bidding. You have more funding interruptions. When there’s uncertainty, when there’s change, there’s a hesitancy, whether it be Wall Street or healthcare.”
His company’s Institutional Products Group suffered “a severe drop in revenues” in the third quarter because of that hesitancy: customers couldn’t get the credit they needed to make purchases, Blouch said. Segment revenues fell 16 percent to $19.8 million from a year ago.
In 2008, uncertainty posed by a worldwide financial crisis and the first rumblings of U.S. healthcare reform caused Invacare to stop acquiring, though the company had acquired many product lines over the years.
The company had scaled back acquisitions in 2007 as it fought to regain competitiveness against low-cost foreign manufacturers, as well as find new footing in a shifting government reimbursement environment.
One restructuring move was to source materials and manufacture products on a global basis.
“We’ve kind of kept our heads down and haven’t paid much attention” to acquisitions, during that time, Blouch said.”We’re beginning to aggregate simultaneously the focus on completing the process of globalizing our product platforms and looking at acquisitions as opportunities to accelerate that process.”
And Invacare executives who have paid down their company’s substantial debt in recent years have given it “one more arrow” in its quiver to make acquisitions, he said. In the third quarter alone, Invacare repaid $18.6 million, bringing its debt-to-earnings ratio to 1.9 percent. A year ago, that ratio was 2.6 percent.
The company also is offering to buy back $146 million-worth of senior notes that come due in 2015 to reduce the burden of high-cost debt.
Pressed on when acquisitions — and sales growth of between 4 percent and 5 percent — might materialize, CFO Rob Gudbranson demurred.
“We talked about our efforts with globalization, and new products are being delivered by the team. We’re clearly targeting the growth rate we’ve had in the past.”
