Allied Healthcare's Bleak Outlook

It’s rare to see a company come clean with the brutal accord found in Allied HealthCare Products’ (AHPI) recent press releases.

The company disclosed Friday that its second quarter net income fell almost 98%. The sharp decline resulted from gross margins that fell by about $960,000 compared to last year. Low production levels, caused by lower sales, combined with decreases in inventory resulted in the lower absorption of fixed costs.

Allied manufactures a broad range of products for use in respiratory care and anesthesia delivery. In the most recent quarter, material costs increased by 2.2% and labor costs increased by 4.5%. Though planned for this year, cost-saving measures needed to offset the higher labor and material expenses never got off the ground.

Said Earl Refsland, Allied President and CEO, “We failed to execute [cost reduction efforts] in the first two quarters. We know what we have to do to correct problems we encountered, we just have to focus on the basics and execute.”

How or why the company failed is unclear.

Profits for the quarter ended Dec. 31, 2007, fell 97% from $293,000, or 4 cents per share, last year to $6,500, or zero cents per share, in the current quarter.

The one bright point appears to be the company’s cash position, which despite difficulties, improved again this year. Allied had a cash balance of about $4.7 million at the end of the first half of the fiscal year, an increase of more than 17% over the previous quarter and 30% over the previous year end.

The company’s share price, which has been hovering in the $7 range, was only modestly affected by poor performance.