Shares of AmSurg Corp. (AMSG) declined 7.6% to close at $43.66 on Apr 25, 2014, following the company’s announcement of its first-quarter 2014 financial results on Apr 22, 2014. The company’s adjusted earnings per share (EPS) from continuing operations moved up 1.9% year over year to 53 cents. However, the EPS figure lagged the Zacks Consensus Estimate of 55 cents and coincided with the lower end of the company’s guidance range of 53−57 cents. Including one-time item of gains from deconsolidation of a surgery center the company reported first-quarter 2014 net earnings per share from continuing operations of 55 cents, down 1.8% year over year.
Revenues during the quarter scaled up 1.9% year over year to $263.1 million, lagging the Zacks Consensus Estimate of $271.0 million. According to Amsurg, the growth was backed by 2.4% increase in revenues per procedure, mainly attributable to six centers acquired in 2013.
Same-center revenues during the quarter declined 2% year over year. The decline was on account of adverse weather impacts on 38% of the centers in the portfolio resulting in a loss of 8,000 procedures. AmSurg exited first-quarter 2014 with a total of 242 operational centers.
Operating expenses increased 3.7% year over year to $177.2 million due to higher salaries and benefits (up 2.8% to $83.2 million), supply cost (up 4.0% to $38.7 million) and other operating expenses (up 4.8% to $55.3 million). Moreover, on the back of increased expenses, adjusted operating margin contracted 120 basis points to 32.6% in the first quarter.
AmSurg exited the reported quarter with $47.1 million in cash and cash equivalents versus $50.8 million at the end of 2013, and had $237.5 million available under its revolving credit facility. For the first quarter, net cash flow from operating activities was $69.8 million, down 5.5% from the year-ago quarter. Moreover, the company incurred $12.1 million capital expenditure in the reported quarter resulting in free cash flow of $57.7 million.
Outlook Revised
AmSurg revised its 2014 operating and financial guidance. The company now lowered its revenues guidance to the range of $1.12−$1.13 billion (earlier guidance: $1.12−$1.15 billion).The current Zacks Consensus Estimate of $1.12 billion coincides with the lower end of the range. AmSurg also downgraded its full-year EPS outlook within $2.41−$2.45 (earlier $2.45−$2.49), excluding the deconsolidation gain. However, the current Zacks Consensus Estimate of $2.44 is pegged close to the upper end of the range.
Further, the company’s 2014 same-center revenue growth continues to be forecasted at 1%–2% (unchanged). Expected net cash flow provided by operating activities, less distribution to non-controlling interests, is reiterated in the range of $150−$160 million in 2014. Center acquisitions are continued to be estimated to generate annual operating income of $25−$29 million.
Additionally, AmSurg provided its EPS guidance for the second quarter of 2014. The company expects EPS in the range of 61−64 cents. The current Zacks Consensus Estimate of 63 cents remains near the upper end of the range.
Our Recommendation
AmSurg delivered disappointing first-quarter 2014 results missing the Zacks Consensus Estimate on both fronts. Adverse weather conditions served as the main obstacle for the company in the reported quarter. Moreover, still-sluggish same-center sales continue to be an area of concern. The revised bearish 2014 outlook also fails to indicate any near-term catalyst that may improve the economic scenario in the near future.
However, we are positive on the company’s new joint ventures and also expect AmSurg to progress well on its acquisition pipeline, supported by a strong cash position. Moreover, we are 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.
Currently, AmSurg retains a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked stocks in the broader healthcare sector that warrant a look are Enzymotec Ltd. (ENZY), Myriad Genetics Inc. (MYGN) and Natus Medical Inc. (BABY). Enzymotec and Myriad Genetics sport a Zacks Rank #1 (Strong Buy) while Natus Medical carries a Zacks Rank #2 (Buy).
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