Halyard Health, Inc. reported second quarter 2017 results and raised its full-year 2017 adjusted diluted earnings per share outlook.

Executive Summary

• Second quarter 2017 net sales totaled $399 million, compared to $400 million in the same period last year.

• Net income for the second quarter 2017 was $17 million compared to net income of $7 million in the second quarter a year ago. Second quarter adjusted net income was $24 million compared to adjusted net income of $21 million in the prior year.

• Second quarter diluted earnings per share were $0.36 compared to $0.14 diluted earnings per share in the second quarter 2016. Adjusted diluted earnings per share in the quarter were $0.51, compared to adjusted diluted earnings per share of $0.45 in the prior year.

• Year-to-date net sales totaled $795 million, up 1 percent, compared to the year-ago period.

• Through six months, diluted earnings per share were $0.63 compared to $0.44 a year ago. Adjusted diluted earnings per share for the first half of 2017 were $0.99, even compared to the prior year.

• The company raised its full-year 2017 adjusted diluted earnings per share outlook from $1.70 to $2.00 to $1.85 to $2.05.

"Halyard has delivered a strong quarter with solid earnings and profitability performance in the Medical Devices segment. We are on track to achieve our 2017 goals, and I am pleased that we are able to raise our full-year adjusted diluted earnings per share outlook," said Joe Woody, Halyard CEO. "Building on Halyard's solid foundation, leading market positions across our portfolio and strong product pipeline, we expect to accelerate Halyard's transformation into a leading Medical Devices company."

Second Quarter 2017 Operating Results

Net sales totaled $399 million, $1 million lower compared to a year ago. Including Corpak, volumes increased 3 percent compared to the prior year, which was partially offset by lower selling prices.

Operating profit was $29 million in the second quarter compared to $18 million in 2016. On an adjusted basis, operating profit was $40 million compared to $41 million in the prior year. Lower selling prices in Surgical and Infection Prevention and expected higher nitrile costs were partially offset by volume growth in Medical Devices, manufacturing cost savings, and favorable currency exchange rates.

Adjusted operating profit for the second quarter excludes $2 million for acquisition-related charges, $6 million for litigation matters and $5 million for intangible amortization expense, which was partially offset by a $2 million spin-related benefit from the higher than expected sale of Kimberly-Clark branded inventory.

Adjusted EBITDA for the second quarter, excluding spin-related transition charges, acquisition-related charges and litigation expenses was $51 million, compared to $52 million a year ago.

Second Quarter 2017 Business Segment Results

Medical Devices

Net sales of Medical Devices in the second quarter 2017 totaled $149 million, a 5 percent increase compared to the second quarter 2016. Organic sales volumes increased 3 percent, as performance was driven by higher volume across all product categories.

Operating profit for Medical Devices was $41 million, a 40 percent increase compared to the prior year. Performance was driven by higher sales volumes, manufacturing cost savings, and lower selling, general and administrative expense.

Surgical and Infection Prevention

S&IP net sales were $247 million, a 4 percent decrease compared to the second quarter of 2016. Volumes for the quarter were flat. Continued volume growth in exam gloves was offset by lower volume in facial protection due to the timing of the cold and flu season and lower exam glove sales to Kimberly-Clark. Lower selling prices of 4 percent were concentrated in exam gloves.

S&IP operating profit for the quarter was $15 million compared to $25 million in the second quarter of 2016. The decrease was due to higher price loss and expected higher nitrile costs, which was partially offset by manufacturing cost savings and favorable currency exchange rates.

Year-To-Date Results

Medical Devices

In the first six months of 2017, net sales of Medical Devices totaled $295 million, up 10 percent compared to the comparable period in 2016. Sales volumes increased 11 percent bolstered by Corpak. Organic sales volumes grew 3 percent, driven by higher volume across all product categories.

Through six months, operating profit for Medical Devices was $79 million, a 34 percent increase compared to the first six months of 2016. Results were driven by higher volumes and manufacturing cost savings.

Surgical and Infection Prevention

In the first six months of 2017, S&IP net sales totaled $494 million, a 3 percent decrease compared to the prior year. Sales volumes increased 1 percent driven by strong demand for exam gloves and facial protection. Sales volume growth was offset by 4 percent lower selling prices primarily in exam gloves.

Year-to-date, S&IP operating profit was $33 million compared to $50 million in the first half of 2016. Performance was driven by higher sales volumes, manufacturing cost savings, and favorable currency exchange rates offset by lower selling prices and higher commodity costs.

Balance Sheet and Cash Flow

Total debt at the end of the second quarter 2017 was $580 million, consisting of a secured term loan and unsecured notes, compared to total debt of $579 million at the end of 2016.

Cash from operations for the second quarter was $20 million compared to $52 million a year ago. Capital spending for the second quarter was $6 million, even compared to 2016. The company's cash balance was $155 million at the end of the second quarter 2017, compared to $114 million at the end of 2016.

2017 Outlook and Key Planning Assumptions

The company is revising its previously announced full-year 2017 outlook.

• Adjusted diluted earnings per share are now expected to range between $1.85 and $2.05.

Based on current trends, the company is updating one of its key planning assumptions, as described below.

• The company lowered its commodity inflation assumption from $10 to $20 million to $5 to $10 million.