Tennessee-based healthcare provider Amsurg Corp. (AMSG) reported third-quarter 2014 adjusted earnings per share (EPS) of 66 cents from continuing operations, reflecting a decent 24.5% rise from the year-ago figure of 53 cents. Earnings also sailed past the Zacks Consensus Estimate of 54 cents while exceeding the company’s guidance of 63−65 cents. Solid revenue growth in the third quarter primarily contributed to the year-over-year earnings improvement.
Including one-time items, the company reported third-quarter 2014 net loss per share from continuing operations of 23 cents, a huge slash from the year-ago net income per share of 52 cents.
Quarter in Details
Revenues in the quarter shot up 91.3% year over year to $503.2 million, but fell short of the Zacks Consensus Estimate of $515 million. According to Amsurg, the massive year-over-year growth came largely on the back of Sheridan's results for the quarter. We remind investors that Sheridan was acquired by Amsurg in Jul 2014. According to the company, the combination of Sheridan’s position in outsourced physician services and AmSurg’s leadership in ambulatory services has been received well in the niche markets and generated a strong pipeline of cross-selling opportunities.
Same-center revenues for the Ambulatory Services division rose 1.7% year over year. Organic revenue growth for Sheridan's Physician Services was 5.5% with 5.1% increase in same contract revenues and 0.4% rise in new contract revenues. AmSurg exited the third quarter with a total of 234 operational centers.
Operating expenses increased 107.3% year over year to $364.4 million due to higher salaries and benefits (up 188.4% to $240.6 million), supply cost (up 13.1% to $42.2 million) and other operating expenses (up 48.2% to $81.5 million). Moreover, on the back of increased expenses, adjusted operating margin contracted 557 basis points to 27.6% in the quarter.
AmSurg exited the reported quarter with $194.1 million in cash and cash equivalents versus $50.8 million at the end of 2013, and had $300 million available borrowing capacity under its revolving credit facility. For the third quarter, net cash flow from operating activities was $122.5 million, up 27.1% from the year-ago period.
Outlook Revised
AmSurg has updated its 2014 operating and financial guidance, primarily to take into account the impact of the Sheridan transaction. The company now expects revenues in the range of $1.60−$1.61 billion (earlier guidance: $1.61−$1.63 billion). The current Zacks Consensus Estimate of $1.64 billion exceeds the guidance range. On the other hand, AmSurg upgraded its full-year adjusted EPS outlook to $2.66−$2.71 (earlier $2.61−$2.66). The current Zacks Consensus Estimate of $2.40 remained far behind the company’s guidance.
Further, the company’s 2014 same-center revenue growth is projected at 1% (1%–2%). Moreover, the company now expects 6%–8% organic revenue growth in physician services in 2014 (unchanged). Expected net cash flow from operating activities, less distribution to non-controlling interests, has been upgraded to the range of $234–$245 million (earlier: $170–$180 million).
Additionally, AmSurg provided its EPS guidance for the fourth quarter of 2014. The company expects EPS in the range of 70−73 cents. The current Zacks Consensus Estimate of 63 cents for fourth-quarter earnings falls below the guided range.
Our Take
AmSurg delivered mixed third-quarter 2014 results beating the Zacks Consensus Estimate for earnings by a decent number, while revenues missed the mark. However, we are encouraged by the impressive year-over-year sales growth, which is primarily attributable to the Sheridan acquisition completed last July. According to the company, it is perfectly on track with the integration process for the same and expects the combined company to provide better synergy in capturing niche market opportunities. Moreover, the company has upgraded its 2014 earnings outlook which indicates some near-term catalyst that will aid its financials further in the near future.
We are also optimistic about the fact that government agencies have undertaken initiatives to curtail healthcare expenditure, thereby resulting in a shift toward ambulatory surgery centers from admission to traditional hospitals. This in turn should benefit healthcare providers like Amsurg.
Zacks Rank
Currently, AmSurg retains a Zacks Rank #1 (Strong Buy). Some other well-placed Medical-Outpatient/Home Care stocks are Amedisys Inc. (AMED), Chemed Corp. (CHE) and RadNet, Inc. (RDNT). All these stocks hold a similar Zacks Rank #1.
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