Tenet Healthcare Corp. (THC) reported third-quarter 2013 income from continuing operations of 45 cents per share that missed the Zacks Consensus Estimate of 46 cents per share. However, earnings improved from 33 cents in the year-ago quarter.
The strong performance of Tenet Healthcare’s hospitals, growth in revenues along with cost control measures fueled the year-over-year improvement.
Including restructuring charges, acquisition related costs and litigation and investigation costs, net income during the third quarter stood at 27 cents per share, down from 37 cents in the prior year quarter.
Operational Update
Net operating revenues stood at $2.41 billion, up 8.4% from the prior-year quarter. However, revenues were in line with the Zacks Consensus Estimate.
Improved terms of commercial managed care contracts and an improvement in Medicaid revenues that resulted from the California Provider Fee program and the Texas uncompensated care 1115 waiver program spurred Tenet Healthcare’s net patient revenues per adjusted admission by 3% year-over-year to $11,928.
Total admissions declined 2.6% from the year-ago quarter, while adjusted admissions declined 0.5% year over year due to lower inpatient admissions. On the other hand, the area of strategic focus viz surgeries increased 17.8% while emergency department visits grew 3.1%.
Although bad debt expense increased during the quarter due to higher uninsured revenues, bad debt expense, as a percentage of revenues, decreased 50 basis points year over year to 8%.
Tenet Healthcare’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved 7.1% year over year to $288 million in the third quarter. The improvement was mainly due to higher revenues that offset the increase in expenses.
Financial Position
Tenet Healthcare exited the reported quarter with cash and cash equivalents of $82 million, down from $364 million as of Dec 31, 2012. As of Sep 30, 2013, total assets of Tenet Healthcare were $9.3 billion and shareholder equity was $825 million.
Net cash flow from operating activities in the first nine months of 2013 was $334 million, down from $337 million in the year ago period.
Tenet Healthcare’s capital expenditure increased to $142 million in the third quarter of 2013 from $108 million in the year-ago quarter.
Share Buyback
Tenet Healthcare repurchased 2.6 million shares under its $500 million share buyback program during the third quarter. Currently Tenet Healthcare is left with shares worth $100 million under its authorization.
Guidance
Assuming that the soft inpatient volume growth trend and less attractive payer mix will persist through the fourth quarter, Tenet Healthcare announced that it expects adjusted EBITDA of $400 million to $450 million in the fourth quarter of 2013. The Vanguard acquisition, completed in early Oct 2013, is not expected to add much to the adjusted EBITDA in the upcoming quarter.
The lower end of the adjusted EBITDA guidance for 2013 was cut to $1.298. However, the higher end was reiterated at $1.3 billion (old guidance: $1.25–$1.3 billion). The mid-point of the guidance represents an 8% increase from 2012.
Our Take
Tenet Healthcare exceeded the year-ago numbers but missed our earnings expectation by a penny. Top line fared well being in line with the Zacks Consensus Estimate and beating the year-ago numbers.
Tenet Healthcare recently completed the acquisition of Vanguard which complements the company’s strategy of expanding its operating and competitive leverage in metropolitan markets via inorganic growth. This acquisition will thus diversify Tenet’s business portfolio and help it to post better numbers going forward. As per the healthcare reforms in the U.S., effective Jan 1, 2014, it will be mandatory for U.S. citizens to have medical insurance coverage. This provides ample growth opportunities for healthcare providers. With its enhanced product offering due to the Vanguard acquisition, Tenet is well positioned to cater to the additional demand and capitalize on the opportunities.
Others
Among other players in the industry, UnitedHealth Group Inc. (UNH) reported third-quarter 2013 earnings of $1.53 per share, a penny below the Zacks Consensus Estimate. Earnings, however, grew 2.0% year over year.
Zacks Rank
Tenet Healthcare carries a Zacks Rank #3 (Hold). Acadia Healthcare Company, Inc. (ACHC) and VCA Antech Inc. (WOOF) are some of the companies in the financial services space that carry a Zacks Rank #2 (Buy) and appear well-positioned.
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