Invacare Reports Strong Q2 Results

ELYRIA, Ohio–On Thursday, HME manufacturing giant Invacare
reported results from a strong second quarter, ended June 30. Net
earnings increased to $6.3 million or 20 cents a diluted share,
from $0.1 million, or zero cents a diluted share, for the same
period a year ago. Net sales rose 13.7 percent to $447.2 million
versus $393.3 million last year. For the first half of the year,
net earnings were $9.4 million, or 29 cents a diluted share,
compared to a $17.5 million net loss, or 55 cents a diluted share,
for the same period a year ago. Net sales for the six months
increased 12.4 percent to $863.4 million versus $768.2 million for
the same period last year.

According to a statement from the company, the significant
improvement was the result of organic sales growth and cost
reduction activities.

In the North American HME market for the second quarter,
Invacare said, net sales increased 12.3 percent to $187.2 million
compared to $166.6 million in the same period last year, driven
primarily by sales increases in all principal product lines.
Foreign currency and acquisitions each increased net sales by one
percentage point.

Rehab product line net sales increased by 6.7 percent compared
to the second quarter last year, despite volume declines in the
consumer power product line caused by the company’s previous
decision to terminate sales to a large national account. Excluding
consumer power products, rehab product line net sales increased
13.3 percent compared to the second quarter last year, driven by
volume increases in custom power and custom manual wheelchairs as
well as seating and positioning products.

Standard product line net sales for the second quarter increased
15.1 percent compared to the second quarter last year, driven by
increased volumes in manual wheelchairs, patient aids and beds
partially offset by discounts associated with higher sales of
manual wheelchairs to national providers. Respiratory product line
net sales increased 9.2 percent, driven by volume increases in
oxygen concentrators and strong purchases by national and
independent providers.

“The company’s strong organic sales growth and cost
reduction initiatives allowed us to achieve significant earnings
improvement from last year as well as sequentially from the first
quarter,” said Invacare Chairman and CEO A. Malachi Mixon,
III. “Cost reduction and selective price increases continue
as top priorities in order to offset commodity cost increases which
have been incurred on a global basis.”

Over the past several years, Invacare has closed and
consolidated plants, cut jobs and sent some of its manufacturing to
China to lower costs. (See HomeCare, September 2005.)

To compensate for rising commodity costs, each of the
company’s segments has already completed or is implementing
planned selective price increases and freight policy changes for
the third quarter, Invacare said.

Invacare’s earnings statement also notes Congress’
delay of national competitive bidding by 18 to 24 months.

“This action avoided severe disruptions to patient service
and provider stability,” the company said. “In
addition, high-end rehab power wheelchairs and accessories, where
Invacare is the market leader, were excluded from any future NCB
program.”

In addition, the company said, elimination of a provision of the
Deficit Reduction Act of 2005 mandating that beneficiaries assume
ownership of oxygen equipment after 36 months “not only
reduces a significant risk to COPD patients but also reduces the
risk to providers of investing in new oxygen therapy delivery
technologies where Invacare has been the industry leader with
products such as the HomeFill oxygen system and XPO2 portable
oxygen concentrator.”

Considering all factors, the company said, Invacare expects net
sales to rise between 5 percent and 6 percent this year, excluding
the impact of acquisitions and foreign currency translation
adjustments.

“While we remain cautious regarding the impact of
commodity cost increases and reimbursement and pricing pressures in
Europe, we are confident in our plans to improve second-half
profitability and cash flow,” said Mixon. “We expect
sequential improvement in earnings to be driven primarily by
continued cost reduction efforts, selective pricing increases,
freight recovery actions and organic sales growth. Looking beyond
2008, we expect that the delay related to required changes for NCB
will improve the business outlook for the HME industry and Invacare
in 2009 and beyond.”

The company’s shares jumped nearly 9 percent to $22.77
Thursday on the New York Stock Exchange, and by the market’s close
on Friday had risen to $23.05.