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DaVita Reports Strong 1Q Earnings - Analyst Blog

By: Zacks.com
Posted: 5/8/2013 6:20:00 PM
Referenced Stocks: ADUS;DVA;HLS;LHCG

DaVita Reports Strong 1Q Earnings

DaVita HealthCare Partners Inc. ( DVA ) reported first-quarter 2013 operating earnings of $1.84 per share, beating the Zacks Consensus Estimate of $1.78 as well as $1.50 per share reported in the prior-year quarter. Operating income amounted to $196.9 million, increasing from $143.8 million in the year-ago quarter.

Including loss contingency reserve, loss from discontinued operations and gain from sale of discontinued operations, net income attributable to DaVita's shareholders amounted to $30.2 million or 28 cents per share, compared with $140.1 million or $1.46 per share in the year-ago quarter.

Operational Update

Total revenue in the reported quarter increased 53% year over year to $2.83 billion from $1.85 billion. Top line surpassed the Zacks Consensus Estimate of $2.82 billion.

Total operating expenses and charges climbed 74% to $2.66 billion from $1.53 billion in the first quarter of 2012.

DaVita provided administrative services across 2,032 outpatient dialysis centers, serving approximately 158,600 patients during the reported quarter. Of these, 41 outpatient dialysis centers are located in 9 non-U.S. countries. During the reported quarter, DaVita acquired 8 centers and opened 27 centers in the U.S.

Total U.S. treatments for the reported quarter came in at approximately 5.63 million or 73,579 treatments per day. This represents a per day increase of 8% over the year-ago quarter. Growth of non-acquired treatment in the quarter was 4.3%.

DaVita's effective tax rate was 24.6% in the reported quarter. The third-party owners' income attributable to non-tax paying entities impacted the effective tax rate. The effective tax rate attributable to DaVita shareholders in the reported quarter was 47.1%.

Segment Update  

Segment wise, total revenue from the Dialysis and related Lab Services segment came in at $1.85 billion during the quarter, against $1.72 billion in the prior-year quarter. Operating income for the segment plunged 76% year over year to $87 million in the reported quarter from $359 million in the year-ago quarter.

HealthCare Partners generated revenues of $804 million and operating income of $110 million in the reported quarter.

Ancillary services and strategic initiatives generated revenues of $184 million, up from $139 million in the year-ago quarter. However, the segment recorded an operating loss of $15 million in the reported quarter, narrower than $18 million incurred in the year-ago quarter.

Financial Update

DaVita's operating cash flow amounted to $379 million during the quarter under review. Free cash flow in the reported quarter was $299 million. Total assets at the end of the reported quarter were $16.4 billion, up from $16.0 billion as of Dec 31, 2012.

Long-term debt of DaVita inched down to $8.28 billion from $8.33 billion as of Dec 31, 2012. Shareholder equity as of Mar 31, 2013 amounted to $3.96 billion, up from $3.92 billion at 2012 end.

Legal Update

DaVita created a loss contingency reserve of $300 million in the reported quarter based on its discussions with attorneys from the United States Attorney's Office for the District of Colorado, the Civil Division of the United States Department of Justice and the Office of the Inspector General. The discussions are being held to resolve the ongoing U.S. Attorney Physician Relationship Investigations against the company. However, the amount is not final and can be altered once a final decision is taken.

Debt Update

In Mar 2013, DaVita entered into some interest rate swap agreements with cumulative notional value of $1.33 billion. These agreements require monthly interest payment and will expire on Sep 30, 2016.

In the same month, DaVita also entered several interest rate forwards swap agreements worth $600 million, effective from Sep 30, 2014. These agreements require quarterly interest payment and will expire on Sep 30, 2016.

All these agreements will lead to a fixed rate of interest payment for DaVita, instead of the variable rate paid on its debts earlier.

Additionally, DaVita entered into some interest rate cap agreements in Mar 2013, which will limit the variable portion of its interest rate on the term loan B and term loan B-2. These agreements will also expire on Sep 30, 2016.

Guidance

The lower end of the operating income guidance for 2013 was raised to $1.8-$1.9 billion from $1.75-$1.90 billion. Additionally, DaVita raised the lower end of its operating income guidance for the dialysis services and related ancillary businesses for 2013 to $1.40-$1.45 billion from $1.35-$1.45 billion.

Operating income from HCP is expected to be $400-$450 million in 2013. The company expects the effective tax rate attributable to DaVita in the range of 40%-41% for 2013. Operating cash flow guidance for 2013 was affirmed at $1.35-$1.50 billion.

Zacks Rank

DaVita currently carries a Zacks Rank #1 (Strong Buy). Other healthcare companies worth considering are Addus HomeCare Corporation ( ADUS ) - Zacks Rank #1 (Strong Buy), HEALTHSOUTH Corp. ( HLS ) - Zacks Rank #1 (Strong Buy) and LHC Group, Inc. ( LHCG ) - Zacks Rank #2 (Buy).



ADDUS HOMECARE (ADUS): Free Stock Analysis Report

DAVITA INC (DVA): Free Stock Analysis Report

HEALTHSOUTH CP (HLS): Free Stock Analysis Report

LHC GROUP LLC (LHCG): Free Stock Analysis Report

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