Encompass Health (EHC) Beats on Q2 Earnings, Hikes '21 View

Encompass Health Corporation EHC reported second-quarter 2021 adjusted earnings of $1.17 per share, which beat the Zacks Consensus Estimate by 15.8%. The bottom line increased to nearly four-fold on a year-over-year basis.

The company’s results benefited from growing revenues stemming from Inpatient Rehabilitation, and Home Health and Hospice segments, partly offset by high operating costs.

Quarterly Operational Update

The company’s net operating revenues of $1.3 billion climbed 19.9% year over year attributable to higher volumes and favorable pricing. The top line outpaced the Zacks Consensus Estimate by 1.5%.

Adjusted EBITDA soared 71.9% year over year to $278.9 million in the quarter under review.

Total operating expenses of $1.1 billion escalated 9.6% year over year primarily due to rise in salaries and benefits, other operating expenses, and depreciation and amortization.

General and administrative expenses, excluding stock-based compensation, increased 11.2% year over year to $36.8 million due to improved revenue base.

Encompass Health Corporation Price, Consensus and EPS Surprise

Encompass Health Corporation Price, Consensus and EPS Surprise

Encompass Health Corporation price-consensus-eps-surprise-chart | Encompass Health Corporation Quote

Segmental Results

Inpatient Rehabilitation

Revenues at the segment climbed 21.5% year over year to $1 billion in the second quarter. The growth can be attributed to 20.9% rise in revenues from Inpatient business, which was driven by favorable pricing and higher volumes. A 49.7% surge in revenues from Outpatient and other business contributed to the segment’s revenue growth.

Adjusted EBITDA of $254 million advanced 40.9% year over in the quarter under review, courtesy of growing revenues and prudent productivity management.

Home Health and Hospice

The segment, for which Encompass Health is looking for strategic alternatives, reported 14.6% growth in revenues attributable to Home Health and Hospice sub-segments. Home Health's sub-unit’s revenues of $232.3 million improved 15.1% year over year in the quarter driven by higher admissions. Meanwhile, the same for Hospice sub-segment rose 12.6% year over year to $53.8 million in the quarter under review, courtesy of the company’s move to purchase assets of Frontier Home Health and Hospice in June 2021.

Adjusted EBITDA increased to more than four-fold in the quarter to $61.7 million riding on the back of reduced cost per visit stemming from changes implemented in the clinician compensation model changes in May 2020, and tactical management of full-time staff’s overall productivity.

Financial Update

Encompass Health exited the second quarter with cash and cash equivalents of $73.2 million, which plunged to three-fold from the figure at 2020 end. Total assets of $6.6 billion rose 2.6% from the figure as of Dec 31, 2020.

As of Jun 30, 2021, the company’s long-term debt, net of current portion amounted to $3.1 billion, down 4.5% from 2020-end level.

In the second quarter, adjusted free cash flow improved 22.2% year over year to $205.6 million.

Revised 2021 Outlook

Backed by solid second-quarter results and sound operating metrics, the company hiked its full-year outlook for 2021.

Since the company has not yet arrived on a final decision regarding the home health and hospice business, it has taken the existing business structure into consideration while laying down expectations.

Management projects net operating revenues in the range of $5.1 billion to $5.25 billion, up from the prior outlook of $5.06-$5.23 billion.

This year, adjusted EBITDA is estimated to lie within $1.05-$1.07 billion band, higher than the previous guidance of $1-$1.03 billion.

Adjusted earnings per share from continuing operations is forecast between $4.32 and $4.47 in 2021, up from the prior outlook of $3.94-$4.16.

Zacks Rank

Encompass Health currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Medical Sector Releases

Of the medical sector players that reported second-quarter results so far, the bottom line of Tenet Healthcare Corporation THC, Universal Health Services, Inc. UHS and HCA Healthcare, Inc. HCA beat the Zacks Consensus Estimate.

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