Healthways Misses, Profit Plunges - Analyst Blog

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Healthways ( HWAY ) reported fourth-quarter fiscal 2011 adjusted earnings per share of 27 cents, falling short of the Zacks Consensus Estimate of 35 cents but exceeding the year-ago earnings of 25 cents per share.

The company sank into a loss in the quarter on hefty charges. Net loss for the quarter amounted to $177.1 million (or $5.32 per share) compared with a profit of $15.6 million (or 45 cents per share) a year ago. Net loss included restructuring charges concerning severance charges and Cigna ( CI )-related capacity downsizing of $9 million as well as impairment charges concerning the write down of goodwill amounting to $183.3 million. 

For fiscal 2011, adjusted earnings per share were 85 cents, trailing both the Zacks Consensus Estimate of 90 cents and the year-ago figure of $1.11.

Revenues and Margins

Revenues came in at $180 million in the fourth quarter, down 7.8% year over year, missing the Zacks Consensus Estimate of $183 million. For fiscal 2011, sales were $688.8 million, down 4.4% year over year, falling short of the Zacks Consensus Estimate of $690 million.   

Healthways posted an operating loss of $173.3 million in the fourth quarter compared with operating income of $29.3 million in the year-ago quarter. 

Balance Sheet and Cash Flow

The company had cash and cash equivalents of only $0.864 million, as of December 31, 2011, down 18.8% year over year. Long-term debt stood at $266.1 million, up 9.3% year over year.

Contract Activity

During the reported quarter, Healthways inked 30 new, expanded or extended contracts. These deals included 3 contracts, each over 2% of the company's sales in 2010, which were renewed toward the end of 2011.

The company witnessed strength in contracting activity and signed 34 new contracts and 88 expanded / extended contracts during the course of 2011.

Outlook

Healthways forecasts revenues for fiscal 2012 in a band of $665 million and $705 million. This estimate includes domestic sales of $638 million to $670 million and international sales of about $27 million to $35 million. The company anticipates that the wind down of the Cigna contract will reduce revenues by $75 million in 2012. Healthways believes that quarterly revenues will grow on a sequential basis during 2012 as revenues from large projects start to flow in and performance-based sales recognition takes effect.

The Healthways model encourages people to make favorable lifestyle changes that lead to enhanced well-being, reduced healthcare costs, improved performance and economic value for customers. The company has invested in technology platforms that provide scalable support with large populations.

Due to its unique scalable business model, Healthways shares present a compelling, long-term investment opportunity although it may face many challenges in the short term. Healthways is the leader in a strategically critical and rapidly evolving part of the health care services market. Its fitness program (SilverSneakers) for seniors is available at centers across the U.S. Healthways competes with Express Scrips ( ESRX ) among others. We currently have a Neutral recommendation on Healthways. The stock currently retains a Zacks #2 Rank, which translates into a short-term "Buy" recommendation.


 
CIGNA CORP ( CI ): Free Stock Analysis Report
 
EXPRESS SCRIPTS ( ESRX ): Free Stock Analysis Report
 
HEALTHWAYS INC ( HWAY ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CI , ESRX , HWAY

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