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Invacare profits, revenues grow – slowly

Profit and sales growth slowed significantly in the final quarter of 2008 for Elyria’s Invacare Corp., thanks to an indirect effect of the global financial crisis.

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ELYRIA, Ohio — Profit and sales growth slowed significantly in the final quarter of 2008 for Invacare Corp., thanks to an indirect effect of the global financial crisis.

Invacare, the home health care equipment and supply company based in Elyria, Ohio, reported net income of $17.5 million, or 55 cents a diluted share, in the quarter ended Dec. 31. That was more than twice earnings of $7 million, or 22 cents a diluted share, reported by the company a year ago.

However, removing one-time restructuring charges, debt finance costs and tax-related accounting changes from results, Invacare earned $19.1 million, or 60 cents a diluted share, during the recent quarter. That compared with adjusted earnings of $19 million, or 59 cents a diluted share, a year ago.

Net sales were flat for the quarter compared with a year ago — $430.4 million versus $426,762 a year ago. That’s an increase of 0.9 percent.

However, a strengthening U.S. dollar during the fourth quarter — one effect of the global financial crisis — subtracted five percentage points from Invacare’s foreign sales during the quarter. Removing this effect, as well as a small increase in sales caused solely by acquisitions, Invacare says it had “organic net sales growth” of 5.7 percent for the quarter.

“The company delivered strong organic sales growth and robust earnings for the quarter and year,” said A. Malachi Mixon III, Invacare’s chairman and chief executive, in his company’s earnings statement.

For all of 2008, Invacare had net income of $38.6 million, or $1.21 a diluted share, compared with $1.2 million, or 4 cents a diluted share, in 2007. The company said its adjusted earnings were $43.1 million, or $1.35 a diluted share, compared with $35.7 million, or $1.12 a diluted share, in the prior year.

Invacare reports adjusted results alongside its Generally Accepted Accounting Principles (GAAP) results so that securities analysts and shareholders can better see operating results. Analysts tend to subtract one-time charges and gains, as well as accounting changes, from their earnings projections for companies.

So Invacare’s adjusted earnings for 2008 were “well within the range of Invacare’s original guidance for 2008, despite increased commodity costs during the year and weakening foreign currencies by year-end,” Mixon said.

Net sales were $1.8 billion last year, up 10 percent from $1.6 billion in 2007. Organic sales (net sales minus changes in foreign currency exchange rates and sales solely attributable to acquisitions) grew 7.1 percent from 2007, Invacare said.

The company paid back $59 million in debt to $478.8 million in 2008.

“Equally important, fourth quarter free cash flow strengthened to $56 million as a result of improved earnings and effective working capital management for the quarter, enabling the company to exceed its projectsions on free cash flow for the year,” Mixon said.

Invacare defines free cash flow as cash provided by operations minus cash related to restructuring, and purchases or sales f property and equipment.

Looking forward, Invacare said it faces two big challenges this year:

  • A 9.5 percent reimbursement cut by the Centers for Medicare and Medicaid Services (CMS) for eight categories of home health care equipment. This cut is related to the federal government’s ongoing competitive bidding process for durable medical equipment. CMS also has reduced the number of months for which it will reimburse equipment suppliers — Invacare’s customers — for oxygen products.
  • The global financial crisis could continue to cause the dollar to strengthen, which subtracts from Invacare’s foreign country sales. The crisis also could cause bankruptcies or other financial stress for Invacare’s customers.

The company expects to continue cutting costs by reducing less profitable product lines, as well as to raise prices in some markets in 2009.

So Invacare expects adjusted earnings per share to be between $1.38 and $1.48 this year. It also expects organic growth in net sales of between 5 percent and 7 percent.

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