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Community Health (CYH) Beats Q1 Earnings, Lags Revenues - Analyst Blog

Community Health Systems Inc. ( CYH ) reported first-quarter 2015 adjusted earnings of 85 cents per share, which beat the Zacks Consensus Estimate by 17 cents. Earnings per share (EPS) surged a massive 193.1% from the year-ago quarter primarily driven by margin expansion.

Community Health Systems Inc. - Earnings Surprise | FindTheCompany

However, shares fell 4.15% ($2.14) to close at $49.38 on May 6 owing to modest revenue growth.

Quarter Details

Net operating revenues increased 17.6% to $4.91 billion, which, however, fell shy of the Zacks Consensus Estimate of $5.02 billion. The revenue upside may be primarily attributed to improving volume trends and rising admissions.

Total admissions increased 15.7% while adjusted admissions rose 17%. Outpatient revenues were 56% of total patient revenues compared with 54% in the year-ago quarter.

On a same-store basis, net operating revenues increased 5.2% year over year to $4.78 billion, primarily because of a 2.5% increase in adjusted admissions. On a same-store basis, emergency room visits increased 7.8%.

Medicaid adjusted admissions increased 7.5% while self-pay admissions declined 12% on a total same-store revenue basis. Before bad debt expense, Medicaid revenues increased 14.8% and while self-pay declined 10.4% on a year-over-year basis. Total Medicaid revenue per adjusted admission, prior to bad debts and incurred expense, grew 6.7% from the year-ago quarter.

Community Health hired more than 877 physicians during the quarter as compared with 613 physicians recruited in the year-ago quarter.

Adjusted EBITDA increased 31.7% year over year to $715 million. Meanwhile, total operating costs and expenses jumped nearly 13% year over year to $4.51 billion. Salaries & benefits, supplies, rent and depreciation & amortization increased 13.3%, 20.6%, 18.4% and 16.1%, respectively. The company achieved $50 million of cost synergies from the HMA acquisition in the reported quarter.

Adjusted operating profit soared 124.2% from the year-ago quarter to $399 million owing to a modest growth in operating expenses.

Financial Position

As of Mar 31, 2015, cash and cash equivalents were $222 million as compared with $509 million as of Dec 31, 2014. Long-term debt stood at $16.74 billion as compared with $16.68 billion as of Dec 31, 2014 Net cash outflow from operating activities totaled $61 million in the first quarter.

Guidance

For full-year 2015, Community Health forecasts adjusted EPS in the range of $3.40-$4.05. Net operating revenues are projected in the range of $19.6 billion-$20.6 billion. Same-store hospital annual adjusted admissions growth is expected to be in the range of 0% to 2%.

Adjusted EBITDA is forecasted in the $3 billion to $3.2 billion range. Management forecasts an additional $100 million to $175 million benefit from the Healthcare Reform in 2015. Moreover, additional acquisition synergies related to the HMA takeover is forecasted at around $125 million to $150 million during 2015.

Community Health expects Health Information Technology (HITECH) electronic health records incentive reimbursement of approximately 0.7%--0.8% of net operating revenues for 2015. Meanwhile, operating expenses related to this is expected in the range of 0.25% to 0.35% of net operating revenues.

Management anticipates capital expenditure in the band of $1.05-$1.25 billion, while net cash provided by operating activities is projected in the $1.65-$1.85 billion band.

Our Take

Community Health is growing largely on the back of acquisitions along with reasonable organic growth. We believe that the company's strategy to vend its small hospital assets will help it to focus on large hospitals in growing non-urban areas. On the other hand, strategic acquisitions will improve the company's penetration, which will in turn enhance its competitive position.

Medicaid expansion is also expected to drive top-line growth as it will reduce bad debts and charity spending. Moreover, improving synergies from the HMA acquisition will drive profits going forward.

However, high debt levels remain a major concern.

Stocks to Consider

Currently, Community Health has a Zacks Rank #3 (Hold).

Better-ranked stocks include Adeptus Health ADPT , Acadia Healthcare ACHC and Universal Health Services UHS . Adeptus Health sports a Zacks Rank #1 (Strong Buy), while Acadia and Universal Health carry a Zacks Rank #2 (Buy).

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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 Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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