Home health and hospice care provider Amedisys Inc. (AMED) reported adjusted earnings from continuing operations of 28 cents per share in the third quarter of 2014, beating the Zacks Consensus Estimate by an impressive 64.7%. Adjusted earnings also reflected a significant improvement when compared to the year-ago loss of a penny per share. Despite a slight drop in year-over-year sales growth, a robust margin owing to reduced cost of revenue contributed to the impressive earnings outcome in the quarter.
Barring any adjustment, the company's reported earnings of 26 cents a share also demonstrated a remarkable improvement from net loss of $2.89 per share in the year-ago period.
Following Amedisys' promising earnings announcement, the company's stock price surged 16.2% to eventually close at $25.28 yesterday.
Quarter in Detail
Amedisys primarily derives revenues from its home health and hospice agencies. Third-quarter 2014 net service revenues grossed $300.3 million, down 0.3% year over year. However, the top line was almost on par with the Zacks Consensus Estimate.
Within the company's Home Health division, net service revenues totaled $237.2 million (up 0.2% year over year) with Medicare revenues of $185.4 million and non-Medicare revenues of $51.8 million.
Within the Hospice division, net service revenues reached $63.1 million (down 2.2% year over year) including Medicare revenues of $59 million and non-Medicare revenues of $4.1 million.
The company reported a 150 basis points (bps) expansion in gross margin to 43.3% in the reported quarter with 3% decline in cost of service revenues in the third quarter. Expenses on salaries and benefits declined 6% to $69.5 million, while other expenses fell 20.6% to $32 million. Amedisys posted adjusted operating income of $28.6 million in the reported quarter, reflecting a massive increase over the adjusted operating income of $11.8 million in the prior-year quarter. Consequently, adjusted operating margin also expanded 510 bps to 9.5%.
Amedisys exited the quarter with cash and cash equivalents of $5.5 million compared with $17.3 million at the end of Dec 31, 2013. The company's long-term obligations (excluding current portion) were $102.3 million versus $33.0 million at year-end 2013. Net cash provided by operating activities in the quarter was $25.3 million, compared with $27.9 million in the year-ago quarter.
Our Take
We are impressed with Amedisys's encouraging third-quarter financial results wherein the bottom line exceeded while the top line met the respective Zacks Consensus Estimate. The company also observed an extraordinary improvement in its adjusted EBITDA of $23.8 million. Management is optimistic that Amedisys possesses the opportunity to improve its EBITDA in future, even further. However, the fact that Amedisys provided no guidance for the remaining quarters of the current fiscal might negate the positives to some extent.
Currently, the company is strategically focused on increasing its operational efficiency by reducing its cost of revenue and general and administrative expenses. Encouragingly enough, the company has already successfully cut down on these expenses to a certain extent, as can be observed in the reported quarter's outcome. 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 efforts to revive the Hospice platform through better cost management.
Currently, the stock carries a Zacks Rank #1 (Strong Buy). Some other well-placed Medical-Outpatient/Home Care stocks are AmSurg Corp. (AMSG), RadNet, Inc. (RDNT) and US Physical Therapy Inc. (USPH). All these stocks sport a similar Zacks Rank #1.
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