Invacare Records Strong Q3

ELYRIA, Ohio — Invacare has posted strong third-quarter
financial results, with a 9.3 percent increase in organic sales and
a 40 percent improvement in adjusted earnings before taxes, the
company reported Thursday.

Adjusted earnings per share were $0.42 for the third quarter of
2008 compared to adjusted earnings per share for the same period
last year of $0.34. Adjusted net earnings for the quarter were
$13.4 million versus $10.8 million last year. Adjusted earnings
before taxes for the quarter were $17.5 million compared to $12.4
million for the third quarter last year. The improvement resulted
primarily from organic sales growth from both volume and selective
price increases, cost reduction activities and reduced net interest
expense, which were partially offset by increases in commodity
costs, according to a statement from the company.

Net sales for the quarter increased 13.4 percent to $461.8
million versus $407.3 million last year. Organic net sales for the
quarter grew 9.3 percent over the same period last year, driven by
improved performance in all segments, officials said. A. Malachi
Mixon, III, Invacare chairman and CEO, pointed to a particularly
strong quarter for North American HME, which had its fourth
consecutive quarter-over-quarter increase.

North American HME net sales increased 13.9 percent to $191.2
million compared to $167.9 million in the same period last year,
driven primarily by sales increases in all principal product lines,
Mixon said.

Rehab product line net sales increased 2.2 percent compared to
the third 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 7.6
percent compared to the third quarter last year, driven by volume
increases in custom power and custom manual wheelchairs. Standard
product line net sales for the third quarter increased 21.7 percent
compared to the third quarter of last year, driven by manual
wheelchairs and patient aids. Respiratory product line net sales
increased 20.6 percent on increases in oxygen concentrators and
HomeFill, with strong purchases by national providers.

“The company’s operating performance was solid all the way from
strong organic sales growth for the quarter to the 40 percent
improvement in adjusted earnings before income taxes,” Mixon said.
“The company realized benefits from cost reduction initiatives as
well as selective price increases implemented during the quarter,
which helped to offset increased commodity costs. Equally
important, third quarter free cash flow strengthened as a result of
increased earnings to a positive $16 million for the quarter, a
significant improvement over the first half of the year. With
continued increase in profitability and improved working capital
management in the fourth quarter, free cash flow is still projected
to be strong for the year.”

While Mixon said the global financial crisis “will impact all
businesses, including Invacare’s, demand for home medical products
and services should remain strong … Looking at risks over the
medium term, the company will remain judicious in its extension of
credit to customers, since it is uncertain what potential impact
the credit crisis will have on Invacare’s customers’ funding
sources.”

Further addressing financial conditions during a press call,
Mixon said, “I don’t think any of us are old enough to have ever
gone through anything like what we are going through. And some of
the old timers here at the company tell me that Invacare actually
did better in bad economic times than the good ones, because people
aren’t working. They have health problems. They go see their
doctor.” At least for now, he continued, “If I weren’t reading the
paper, I wouldn’t see any impact on our business … I really
think we are about as good a business as you can have to be
insulated from the general economy.”

But Mixon also pointed to Medicare’s coming 9.5 percent
reimbursement cut, effective in January, and said the industry “may
be cautious in its buying patterns with such changes.”

Customers could “migrate down to a less configured product, a
more basic product,” Mixon said, as Medicare or Medicaid cut
reimbursements. For example, he explained, “we make a full electric
bed, where you can lift the patient up and change the head and foot
of the bed. We make a semi-electric bed, and we make a manually
operated bed. Well, if you can crank with your hand, it will still
get the bed up, so it may be that you will see some migration into
a ‘less-featured’ category.”

Recently, Invacare expanded its iPartner Solutions services
division with the addition of Bargmann Management (renamed Invacare
HCS), which specializes in collecting co-pays. “Many of our
customers don’t have a credit department big enough to really do
that,” Mixon said. “So here is a service I can go to you and say,
‘Look, I will help you collect your co-pay’ … We are continuing
to hold the hand and develop relationships that go beyond just the
products,” he said.

As for how the coming election might affect the industry? “Well,
it is a very important issue, and as you listen to McCain and Obama
… they are dealing with a global issue of health care, and
home care only represents about 2 percent of the whole Medicare
budget,” Mixon said.

“I don’t have a clear understanding yet of McCain and Obama’s
position on our little industry, but I am trying to find out … We
are advocates for home health care, and we certainly have
supporters on both sides of the aisle. As an example of that was
tremendous congressional support we had in overriding the
[president’s veto] of the ‘doc fix’ bill when we were able to get
the long delay in competitive bidding. And we are very hopeful the
industry can work with CMS to change that program to an
alternative.”