Tenet Healthcare Corp.
) reported first-quarter 2012 income from continuing operations of
13 cents per share, surpassing the Zacks Consensus Estimate of 9
cents, but it fell a penny short of the prior-year quarter earnings
of 14 cents. Operating income for the quarter declined to $58
million from $73 million in the year-ago quarter.
Growth in revenues arising from higher admissions, outpatient
visits and surgeries were offset by the rise in operating expenses,
leading to the year-over-year decline.
Net operating revenues stood at $2.35 billion, up 2.2% from
$2.30 billion in the prior-year quarter. However, reported revenues
lagged the Zacks Consensus Estimate of $2.45 billion.
During the reported quarter, Tenet's net patient revenues per
adjusted admission increased 1.6% on a year-over-year basis to
$2.518, primarily due to improved terms of commercial managed care
contracts, partially offset by an adverse shift in payer mix and
growth in obstetrics deliveries.
Admissions edged down 0.1% during the quarter, while adjusted
admissions climbed 2.8% year over year. Surgeries increased 6.6%
and emergency department visits improved 5.2%.
Bad debt expense increased 6.0% to $193 million from $182
million in the first quarter of 2011.
Tenet posted adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) of $314 million in the
reported quarter, down 17% from $379 million in the prior-year
quarter. Adjusted EBITDA margin was 13.4% compared with 16.5% in
the year-ago quarter.
Adjusted EBITDA for both the reported quarter and the year-ago
quarter include state provider fees, Health Information Technology
incentives, payer settlements and gains. Adjusted EBITDA also
includes $77 million from an industry-wide Medicare inpatient
prospective payment settlement in the reported quarter and $75
million in incremental revenue from the California and Pennsylvania
Provider Fee programs in the year-ago quarter.
Tenet exited the quarter with cash and cash equivalents of $104
million, down from $113 million as of 2011 year end. The decrease
in cash was the result of $26 million spent on buying back 5.3
million shares. It was negatively impacted by annual cash payments
related to some compensation and benefit expenses and seasonal
repayment of debt obligations.
Tenet's capital expenditures increased to $136 million in the
quarter, compared with $116 million in the prior-year quarter.
Net cash used in operating activities in the quarter was $42
million, soaring up from $2 million used in the year-ago quarter.
As of March 31, 2012, total assets of Tenet were $8.455 billion and
shareholders' equity was $1.46 billion.
Update on Buyback of Mandatory Convertible Preferred
The company bought back mandatory convertible preference shares
worth $299 million, which would have been converted into about 51
million equity shares on October 1, 2012, had the preference shares
not been repurchased.
The buyback was financed by the issue of $150 million worth of
8% senior notes due August 1, 2020 and $141.2 million of 6.25%
senior secured notes due November 1, 2018.
This buyback coupled with 81 million shares bought back
exhausting the $400 million authorization, lowered the share count
by 132 million.
Tenet, for the second time raised Adjusted EBITDA guidance. The
guidance was raised by $25 million to $1.250 - $1.375 billion.
The company expects two major items - net revenues of $120
million from the California Provider Fee 30-Month Program and $35
million from Health Information Technology incentive payments - to
be realized in the fourth quarter. Therefore, expectedly earnings
would be higher in the second half of 2012.
As such, the company guided second quarter adjusted EBITDA in
the band of $225-250 million.
Revenue and adjusted EBITDA guidance include $190 million and
$10 million, respectively, from Tenet's holding in Creighton
University Medical Center (CUMC). However, the company is planning
to sell its stake in the CUMC to Alegent Health and has signed a
non-binding agreement for the same.
Tenet expects to realize $63 million from the sale, including
working capital. The transaction is expected to culminate in the
second quarter of 2012, subject to agreement finalization as well
as customary closing conditions. The company expects a non-cash
impairment pre-tax charge of $100 million, or $50 million post-tax,
due to the sale.
Universal Health Services Inc.
), a rival of Tenet, declared its first-quarter earnings of $1.13
per share, lower than the Zacks Consensus Estimate of $1.16
and also lagging the year-ago earnings of $1.15.
HCA Holdings Inc.
) reported adjusted income of 96 cents per share in the first
quarter of 2012, lagging the Zacks Consensus estimate of 98 cents,
but beating the year-ago earnings of 84 cents.
Tenet carries a Zacks #3 Rank, implying a short-term Hold
rating, with no clear directional pressure in the near term.
Considering the fundamentals, we maintain our long-term Neutral
recommendation on the shares.
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