Coronavirus surge in critical care sales helps Hillrom beat Q2 guidance

Dive Brief:

A $15 million boost from the global coronavirus pandemic has resulted in Hillrom posting second quarter results that beat the Chicago-based medtech's revenue and earnings guidance.
Hillrom said on Friday it is taking on 300 staff globally to increase production of Life2000 non-invasive ventilators by fivefold while doubling output of other COVID-19 critical care products in high demand, including patient monitoring devices and physical assessment tools.
However, Hillrom calculates devices accounting for 40% of its sales will face reduced demand in the near term, leading it to withdraw its guidance in light of uncertainty about how headwinds and tailwinds will interact in the coming months.

Dive Insight:

The composition of Hillrom’s portfolio skews toward products in increased demand during the pandemic. Most sales come from patient support systems and front line care equipment such as smart beds and ventilators. Hillrom's surgical unit is by far the smallest of its three businesses.

In the second quarter, core revenue grew 6%, beating its target by two percentage points. The company cited a $15 million net boost from COVID-19 as a key driver, pointing to record orders of smart beds and demand for Life2000 ventilators as highlights. Core sales of patient support systems and front line care devices rose 7% in the quarter.

CEO John Groetelaars said the increase in demand related to COVID-19 hit “toward the end of the quarter” and had the biggest effect on the patient support system unit. Orders of smart beds, one type of product sold by the patient support unit, rose 70% quarter on quarter. According to Groetelaars, the orders position Hillrom for growth in the next quarter.

“We’re obviously looking at a very robust Q3. We have good visibility. We have significant, record orders and backlog of smart beds coming into the quarter, and continuing orders and backlog building in some of these other critical products like monitors and respiratory products,” Groetelaars told investors on a conference call.

The company is targeting a five-fold increase in production of Life2000 ventilators, used in patients with mild-to-moderate respiratory distress, and a doubling of the supply of vital monitoring devices, thermometry products and smart beds. Hillrom is hiring 300 permanent and temporary workers to meet rising demand.

Yet, the boom period for some Hillrom units is happening alongside a downturn for others. The company identified surgical solutions, care communications, vision care and other physician-office products as business areas vulnerable to COVID-19. Those pressures only intensified after the end of the quarter.

“We continued to see accelerated demand across some areas of the portfolio during April. However, we are now also experiencing some project delays,” CFO Barbara Bodem said.

Currently, Hillrom expects demand for products that account for a significant minority of revenues to fall by more than 20% over the coming six months. The anticipated declines reflect delays in large capital projects, an inability to complete installations due to limited hospital access, reduced capital spending by customers, and fewer visits to physician offices.

The severity of those headwinds and extent to which they are offset by rising demand across the rest of the business will depend on the duration of the pandemic and the speed at which demand for healthcare bounces back. Hillrom expects to regain access to hospitals for installations in its fourth quarter but lacks enough certainty to support the retention of 2020 guidance.