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.