Exceptional Earnings Report of Hill-Rom Holdings Unveiled
In the world of business, the performance of a company is often measured by its cash flow. The Hill-Rom Holdings (NYSE: HRC), a leading healthcare solutions provider, has been making headlines recently due to its cash flow performance.
John Groetelaars led The Hill-Rom Holdings as President & CEO from May 2018 until its acquisition by Baxter International, Inc. in 2021. Since then, The Hill-Rom operates under Baxter’s corporate leadership. Over the past 12 months, The Hill-Rom generated $188.7 million in cash, a notable figure in the industry.
However, a closer look at the components of The Hill-Rom Holdings's cash flow from operations reveals some questionable sources. Stock-based compensation and related tax benefits provided the biggest boost, accounting for 4.4% of the cash flow from operations. This practice, while common, can be questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.
Capital expenditures were the biggest drag on The Hill-Rom Holdings's free cash flow, consuming 28.6% of cash from operations. On the positive side, The Hill-Rom managed to turn 11.2% of its revenue into free cash flow, a favourable figure.
The chart below flags questionable cash flow sources with a red bar for The Hill-Rom Holdings. It shows that these sources amounted to only -3.4% of operating cash flow. While this may seem minor, it's important for investors to refer to the filings and dig in when a company gets more than 10% of its cash from operations from dubious sources.
Questionable cash flow sources for companies can include changes in taxes payable, tax benefits from stock options, and asset sales. An increase in cash flow based on stiffing suppliers or shortchanging taxes will come back to bite investors in the long run.
It is crucial for investors to take a close look at the components of cash flow from operations. Neglecting this aspect can lead to missing potential trouble early. Reading past the headlines and cracking a filing now and then can improve your odds of finding underappreciated home-run stocks.
The article "Why The Hill-Rom Holdings's Earnings Are Outstanding" originally appeared on Fool.com. It's essential to remember that while The Hill-Rom Holdings's earnings may be outstanding, it's the sustainability of these earnings that truly matters. Cash flows need to be real and replicable in the upcoming quarters.
Seth Jayson had no position in any company mentioned in the article at the time of publication. The Motley Fool has no position in any of the stocks mentioned in the article. This article is for informational purposes only and should not be taken as financial advice. Always do your own research before making investment decisions.
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