Apr 27, 2018 • 08:30 am ET



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John J. Greisch

saw in our earnings release issued this morning, Hill-Rom delivered another solid quarter and we're pleased to be raising the low end of our full year adjusted earnings per share range by $0.03 to $4.60 to $4.65 per diluted share. Second quarter adjusted earnings of $1.05 per diluted share exceeded our guidance range and increased 19%, our 11th consecutive quarter of double-digit earnings growth.

Core revenue growth combined with benefits from our diversification and operational efficiency initiatives resulted in operating margin expansion of 120 basis points. Strong operational performance and a lower tax rate afforded us flexibility to reinvest in key strategic initiatives, while delivering upside to our earnings guidance. Ongoing international momentum and contributions from new products were key drivers of core revenue growth, which once again increased 2% in line with our guidance. Benefits of our portfolio diversification initiatives helps to offset a decline in our Patient Support Systems revenue where we face a very challenging comparison.

In our International business, sustained momentum and solid execution resulted in 6% core revenue growth. Our One Hill-Rom approach, strong leadership team and disciplined focus on higher-margin growth opportunities have resulted in five straight quarters of international core growth of at least 5%. With all three businesses contributing to this performance, we are encouraged with our progress and expect this positive trend to continue throughout 2018 and over our long range plan.

Innovation remains a key strategy for our company. As you may recall, new products contributed approximately $150 million in revenue in 2017. With revenues of more than $100 million in the first half of 2018, we're well on our way to achieving new product revenue at approximately $200 million for the full year. Let me take a moment to comment on some recent commercial, portfolio optimization and innovation achievements.

First, in Patient Support Systems, we continue to optimize our product portfolio. We recently announced an agreement to divest the vast majority of our third-party rental business, which consists of OEM movable medical equipment rented to customers. This portion of our rental business along with the third-party surfaces business, we're in the process of winding down our both lower growth and margin non-strategic assets. And our actions will allow us to redirect resources and investment towards innovation, enhance commercial capabilities and other attractive growth prospects across the company.

Within our core PSS business, clinical workflow solutions revenue has advanced 10% so far this year with significant demand from several large hospital systems, while core revenue -- core net revenue has been flat. Not only we did have a difficult growth comparison in the second quarter as Frames and Surfaces grew in mid-teens last year, we have many large Centrella orders pending as customers complete their clinical evaluations and capital approval processes. Just five months into the launch, feedback from clinicians on Centrella continues to be positive and our backlog is exceeding our early expectations.

With Centrella revenue accounting for more than 40% of our US Med Surg revenue in the