Amedisys Tops on Q2 Earnings and Revenues, Shares Rally

Louisiana-based home health and hospice care provider Amedisys Inc. (AMED) reported adjusted earnings from continuing operations of 25 cents per share in the second quarter of 2014, an impressive 38.9% rise year over year. Adjusted earnings also steered past the Zacks Consensus Estimate by 8 cents or 47.1%. Per management, operational improvement primarily benefited the quarter's earnings.

Barring any adjustment, the company's reported earnings came in at 23 cents a share, reflecting a significant improvement from net earnings of 6 cents per share in the year-ago period.

Following Amedisys' promising earnings announcement, the company's stock price surged 21.3% to eventually close at $19.49 on Friday.

Quarter in Detail

Amedisys primarily derives revenues from its home health and hospice agencies. Second-quarter 2014 net service revenues grossed $305 million, down 3.5% year over year. However, the top line exceeded the Zacks Consensus Estimate of $301 million.

Within the company's Home Health division, net service revenues totaled $243.5 million (down 2.8% year over year) with Medicare revenues of $191.5 million and non-Medicare revenues of $52.0 million.

Within the Hospice division, net service revenues reached $61.5 million (down 6.0% year over year) including Medicare revenues of $57.7 million and non-Medicare revenues of $3.8 million.

The company reported a 30 basis points (bps) contraction in gross margin to 43.4% in the reported quarter. Expenses on salaries and benefits declined 4.8% to $71.4 million, while other expenses fell 14.2% to $35.5 million. Amedisys posted adjusted operating income of $25.5 million in the reported quarter, up 17.2% from the adjusted operating income of $21.8 million in the prior year quarter.

Amedisys exited the quarter with cash and cash equivalents of $11.2 million compared with $30.1 million at the end of second-quarter 2013. The company's long-term obligations (excluding current portion) were $132.0 million versus $33.0 million at year-end 2013. Net cash used in operating activities in the quarter was $89.1 million, compared to $33.6 million of net operating cash flow in the year-ago quarter.

Our Take

Amedisys recorded an encouraging quarter with both its top and bottom line exceeding the respective Zacks Consensus Estimates. The company also observed a solid 12.9% improvement in its adjusted EBITDA of $22.1 million, which (per management) reflects a positive step forward with respect to the industry-level margins. However, the fact that Amedisys provided no guidance for the current fiscal might have negated the positives to some extent.

The company delivered strong performance in its Home Health segment on the back of management's successful initiative of reducing cost per visit. This was done by shifting more clinicians to the pay-per-visit model. However, Amedisys failed to generate positive growth in its Hospice segment. Going forward, we however believe the company will achieve organic growth in this segment, owing to its constant effort to revive the Hospice platform with better cost management. Our belief is also reinforced by the fact that Hospice has been a relatively consistent performer for Amedisys contribution-wise over the last few quarters.

Currently, the stock carries a Zacks Rank #1 (Strong Buy). Some other well-placed Medical-Outpatient/Home Care stocks include Chemed Corp. (CHE), HEALTHSOUTH Corp. (HLS) and AmSurg Corp. (AMSG). While Chemed and HEALTHSOUTH sport a similar Zacks Rank #1, Amsurg holds a Zacks Rank #2 (Buy).