DaVita HealthCare Partners Inc.
) reported second-quarter 2014 adjusted operating earnings of 95
cents per share that surpassed the Zacks Consensus Estimate of 88
cents. Earnings also improved from the year-ago quarter figure of
92 cents per share.
The upside was driven by improvement in the Kidney Care segment,
strong clinical outcomes and Medicare Advantage revenues.
Davita Healthcare Partners Inc - Earnings
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Including post tax debt financing charges and a contingent
earn-out obligation adjustment, DaVita Healthcare's net income came
in at 68 cents per share, down from 85 cents in the year-ago
Total net revenue increased 10.5% to approximately $3.2 billion.
The top line also managed to beat the Zacks Consensus Estimate of
$3.1 billion. The year-over-year increase was mainly attributable
to rise in patient service revenues, capitated revenues and other
Total operating expenses and charges were $2.7 billion in the
reported quarter, up 14.4% year over year. This was primarily due
to rise in patient care costs and other costs as well as general
and administrative charges.
Total U.S. dialysis treatments in the reported quarter came in at
approximately 6.2 million or 79,441 treatments per day. This
represents a per day increase of 5.6% from the year-ago quarter.
Growth of non-acquired treatment in the reported quarter was 5%.
In second-quarter 2014, DaVita Healthcare opened 22 dialysis
centers in the U.S. Additionally, the company took over three
dialysis centers and opened six dialysis centers outside the U.S.
DaVita Healthcare's adjusted effective tax rate was 35.7% as of Jun
30, 2014, lower than 40.5% in the prior-year quarter. The
third-party owners' income, attributable to non-tax paying
entities, impacted the effective tax rate. The adjusted effective
tax rate attributable to DaVita Healthcare in the reported quarter
was 40.5%, higher than 39.5% in the year-ago period.
Revenues from the
Dialysis and Related Lab Services
segment amounted to $2 billion, up 5.4% year over year. Operating
income at the segment also increased 1.5% year over year to $408
million in the reported quarter.
HealthCare Partners (HCP)
generated revenues of $887 million in the quarter, surging 16.6%
year over year. Moreover, operating income in the segment increased
to $82 million from $81 million in the year-ago quarter.
Ancillary services and strategic initiatives
recorded revenues of $274 million, higher than $200 million in the
second quarter of 2013. Operating loss during the reported quarter
was $2 million, narrower than a loss of $7 million in the second
quarter of 2013.
Total cash and cash equivalents of DaVita Healthcare increased to
$1.4 billion as of Jun 30, 2014 from $946.2 million at the end of
Net cash flow from operating activities in the second quarter of
2014 came in at $262.4 million, down 14.5% year over year.
DaVita Healthcare's long-term debt as of Jun 30, 2014 was $8.4
billion, up from $8.1 billion as of Dec 31, 2013.
DaVita Healthcare raised the lower end of its operating income
guidance to $1.755 billion from $1.725 billion. Thus, the new
guidance range stands at $1.755-$1.840 billion, compared with the
previous projection of $1.725-$1.840 billion. This guidance not
only exceeds the previous forecast of the company but also
translates into a 13.5%-18.7% year-over-year improvement.
Additionally, DaVita Healthcare raised the operating income
guidance for the dialysis services and related ancillary
businesses, including corporate level expenses (together referred
to as Kidney Care) for 2014 to $1.55-$1.60 billion from
DaVita Healthcare lowered the upper end of the 2014 operating
income guidance for HCP to $240 million. Thus, the updated guidance
now stands at $205-$240 million, compared with $205-$260 million
guided earlier. This also compares unfavorably with $385 million
reported at end-2013.
DaVita Healthcare reiterated its total operating cash flow
projection for 2014 at $1.45 billion to $1.55 billion. This is
lower than the 2013 operating cash flow of $1.77 billion.
Effective tax rate for 2014 was reiterated at
DaVita Healthcare's second-quarter earnings not only exceeded our
expectations but also improved year over year, mainly based on a
strong Kidney Care business. Additionally, the quarter witnessed
growth of patients in the Medicare Advantage front, which pulled up
the bottom line to some extent.
However we remain concerned about the company's high debt
levels, which should weigh on its debt expense, thereby
pressurizing margin expansion.
Nevertheless, the company's incessant efforts to upgrade services
and become the pioneer in providing many services in various
nations are commendable. For instance, Davita Healthcare became the
first stand-alone dialysis center in Malaysia to obtain a four-year
accreditation in chronic dialysis treatment from the Malaysian
Society for Quality in Health (MSQH) and the first provider of
hemodiafiltration treatment to patients in the United States, both
in May 2014. Such steps should help the company strengthen its
operations and increase the confidence of patients, which would
open up avenues for further growth..
Performance of Other Healthcare Service Stocks
Humana Inc. (
) posted second-quarter 2014 operating earnings of $2.19 per share,
which was in line with the Zacks Consensus Estimate.
WellPoint Inc. (
) reported second-quarter 2014 adjusted income of $2.44 per share,
beating the Zacks Consensus Estimate of $2.28.
Aetna Inc.'s (
) second-quarter 2014 earnings of $1.69 per share beat the Zacks
Consensus Estimate of $1.61.
DaVita Healthcare presently carries a Zacks Rank #3 (Hold).
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