Hanger profit takes a hit

Hanger Orthopedic Group Inc. said yesterday that higher-than-expected expenses associated with a major acquisition will drag down its second-quarter earnings.

Bethesda-based Hanger, the nation's largest distributor of artificial limbs and braces, said its net income before interest expense, taxes, depreciation and other expenses for the three months that ended June 30 will likely be $23 million - $2 million less than analysts were predicting. Net sales, however, will likely come in at the expected $125 million.


Hanger, which has 3,600 employees including about 300 in Maryland, purchased NovaCare Orthotics & Prosthetics Inc. of Pennsylvania, its largest competitor, for $455 million in cash and assumed debt last year.

Second-quarter expenses related to the purchase included conversion of the billing, collection and payroll systems, and the replacement of dozens of NovaCare practitioners who quit after Hanger bought the company.


"I don't think [the shortfall] is that big of a deal or that much of a surprise," said Michael Petusky, an analyst at Branch, Cabell & Co. Inc., adding that the revenue prediction of $125 million is higher than he had expected.

"I'm pretty confident that, going forward from here, since revenue was slightly better than expected and the expense side is pretty easy to fix, that going through the third and fourth quarter and next year, the company's results and stock price should recover," he said.

Hanger's stock price averaged about $8 over the past 52 weeks, reaching a high of $14.75 in October. It closed yesterday at $4.0625, down 12.5 cents. Ivan R. Sabel, Hanger's chairman and chief executive, said the company has identified several ways to cut operational costs that will reduce selling, general and administrative expenses beginning in the second half of the year.

The cuts are not likely to include wholesale layoffs, he said.

"There may or may not be additional personnel cuts that go along with that, but that's not the heart of it," he said. "This isn't laying off 10 percent of the working staff or anything like that."