Hanger Orthopedic Group, Inc. (HGR) reported fourth quarter and full fiscal 2009 results. For the fourth quarter, earnings per share were 37 cents, beating the Zacks Consensus Estimate of 36 cents and the year-ago earnings of 26 cents. For fiscal 2009, earnings per share were $1.13, higher than the year-ago earnings of 86 cents.

Quarterly results

Net sales for the fourth quarter increased 10.6% year over year to $205.1 million. Growth can be primarily attributed to higher same-center sales of patient care centers, higher demand for the company’s distribution segment and acquisitions.

Hanger witnessed an expansion in margins in the fourth quarter. Gross margin increased 60 basis points (bps) year over year to 71.0%. Operating margin increased 160 bps year over year to 13.4%.

Fiscal year results

Total revenues in fiscal 2009 increased 8.1% year over year to $760.1 million, mainly due to higher same-center sales of patient care centers, greater demand for the company’s distribution segment and acquisitions. Patient-care services and distribution segments contributed 88.2% and 11.6% to total 2009 sales, respectively.

In terms of payor mix: Commercial and other, Medicare, Medicaid and VA contributed 59.5%, 29.1%, 6.2% and 5.2% to total fiscal 2009 sales, respectively.

Hanger ended fiscal 2009 with cash and cash equivalents of roughly $84.6 million, an increase of 45% year over year. The company had an outstanding debt of approximately $410.5 million at the end of fiscal 2009. Hanger generated $73.1 million of cash from operations, compared to $53.2 million in 2008.

Outlook

Hanger expects total revenues in fiscal 2010 to range between $815 million and $825 million, an increase of 7.2% to 8.5% year over year. Earnings per share should be in the range of $1.27 to $1.29, an increase of 12.4% to 14.2% year over year. Operating margin should be higher by 20 bps to 40 bps from the 2009 level. Cash flow from operations is expected between $60 million and $70 million.

In addition, Hanger expects to incur severance and relocation costs of roughly $10 million to $12 million, and lease exit cost of roughly $3 million to $5 million for the relocation of its corporate headquarters. The company expects an annual reduction in operating expenses of approximately $2.5 million to $3.5 million as a result of the relocation.

Hanger Orthopedic Group, Inc. is the global premier provider of orthotic and prosthetic patient care services. Hanger competes with Orthofix International NV (OFIX), Conmed Corporation (CNMD), Exactech Inc. (EXAC) and Owens & Minor Inc. (OMI) in the orthotic and prosthetic space.

Zacks Investment Research

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