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Hanger Orthopedic Group Announces First Quarter EPS of $0.12, a 100% Increase Over the Prior Year and the Company Raises Guidance for 2008

Tuesday, April 29, 2008 General News J E 4
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BETHESDA, Md., April 28 Hanger Orthopedic Group,Inc. (NYSE: HGR) announces net income of $3.6 million, or $0.12 per dilutedshare, for the quarter ended March 31, 2008, a 100% increase compared to netincome of $1.8 million, or $0.06 per share in the first quarter of 2007. TheCompany is also increasing its EPS guidance by $0.05 per diluted share to arange of $0.75 to $0.77 per diluted share for the full year ending December31, 2008, due to a more favorable interest rate environment.

Net sales for the quarter ended March 31, 2008 increased by $13.8 million,or 9.6%, to $157.7 million from $143.9 million in the prior year's comparablequarter. The sales growth was primarily the result of a $5.5 million, or4.2%, increase in same-center sales in our patient care business, a $3.4million, or 25.7%, increase in outside sales of our distribution business and$4.9 million associated with acquisitions. Gross profit for the first quarterof 2008 increased by $7.3 million to $78.6 million, or 49.9% of net sales,compared to $71.3 million, or 49.6% of net sales, in comparable quarter of theprior year. The increase in gross profit was due principally to the salesincrease and the 0.3% improvement in gross margin was due to improved leverageof our labor force.

Income from operations was $14.2 million in the first quarter of 2008compared to $12.4 million in the first quarter of 2007, a $1.8 millionincrease, primarily due to the aforementioned increase in gross profit.Selling, general and administrative expenses increased by $5.0 million, butdecreased by 0.2% as a percentage of net sales as we improved the leverage ofour fixed expenses. The increase in selling, general and administrativeexpense was due principally to $1.8 million in expenses related toacquisitions, a $1.4 million increase in the investment in our growthstrategies, the balance of $1.8 million was due to a combination of meritsalary increases, the impact of inflation on our fixed expenses such as rentand additional overhead to support our increased sales.

Interest expense was $1.1 million less than in the prior year dueprincipally to lower variable rates. As a result of these changes, net incomefor the first quarter of 2008 was $3.6 million, or $0.12 per share, a 100%improvement compared to the prior year's net income of $1.8 million or $0.06per share.

Cash flow used in operations was $7.5 million in the first quarter of2008, compared to the prior year's cash flow provided by operations of $2.2million. The $9.7 million decrease in cash flow from operations wasprincipally due to an $11.3 million change in cash payment related to the 2007incentive compensation plans. The year end payout increased due to acombination of the elimination of two interim payments on the practitioners'incentive compensation plan and improved performance in 2007.

Commenting on the results, Thomas Kirk, President and Chief ExecutiveOfficer of Hanger Orthopedic Group, remarked, "We are pleased to reportcontinued solid financial performance that represents the ninth consecutivequarter in which we have met or exceeded First Call consensus estimates. Thesales and operating results of our core units continue to build even duringour seasonally weaker first quarter. We improved our operating income by14.5% and more importantly slowed the growth of our selling, general andadministrative expenses which helped us to increase our operating margins from8.6% in 2007 to 9.0% this year. We will continue to pay particular attentionto our expenses this year as we look to realize additional leverage from ourinfrastructure."

Hanger Orthopedic Group, Inc., headquartered in Bethesda, Maryland, is theworld's premier provider of orthotic and prosthetic patient care services.Hanger is the market leader in the United States, owning and operating 653patient care centers in 46 states and the District of Columbia, approximately3
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