Tenet Healthcare (THC) Q1 Earnings & Revenues Miss Estimates

Tenet Healthcare Corp. ( (NYSE:THC) ) reported first-quarter 2017 operating earnings of 27 cents per share that missed the Zacks Consensus Estimate of 53 cents by 79%. Also, the bottom line deteriorated 40% year over year due to lower revenue generation.

This underperformance was primarily because no revenues were generated by the California Provider Fee program, the sale of Tenet’s hospitals in Atlanta, GA and approximately $7 million in start-up losses in the first quarter.

Tenet Healthcare reported a net loss from continuing operations of $52 million in the first quarter, which narrowed 5.4% year over year. Adjusted EBITDA of $527 million declined 14.6% year over year.

Operational Update

First-quarter net operating revenue came in at $4.8 billion, down 4.6% from the prior-year quarter. Revenues also missed the Zacks Consensus Estimate of by 0.8%.

For the first quarter, Tenet Healthcare’s provision for doubtful accounts increased 1.9% year over year to $383 million due to higher bad debt ratio. The increase in the bad debt ratio mainly stemmed from a $34 million increase in uninsured revenues.

Same-hospital exchange admissions were 5,168, down 1.8% from the year-ago quarter. Same-hospital exchange outpatient visits were 51,008, up 13.9% from the first quarter of 2016.

Total operating expense of $4.6 billion decreased 3% year over year due to a substantial decline in salaries, wages and benefits, supplies and litigation, and investigation costs.

Quarterly Segment Details:

Hospital & Other

Net operating revenue in the Hospital Operations and Other segment decreased 6.4% from the last-year quarter to $4.1 billion. This was mainly because of the divestment of certain hospitals over this period.

Adjusted EBITDA was $309 million, down 26.1% year over year. This was because no revenues were recorded under the California Provider Fee program, the sale of Tenet’s hospitals in Atlanta, GA and approximately $7 million in start-up losses in the first quarter.

Ambulatory Segment:

The Ambulatory segment generated net operating revenue of $455 million, up 6.1% year over year.

In addition, the segment reported adjusted EBITDA (Earnings before Interest, Taxes, Depriciation and Amortization) of $153 million, up 12.5% year over year.

Conifer Segment:

Conifer’s revenues increased 4.4% from the prior-year quarter to $402 million on the back of 11.5% higher revenues generated from third-party customers.

The segment generated $65 million of adjusted EBITDA in the reported quarter, up 3.2% year over year.

Business Update

Tenet and Humana (NYSE:HUM) reached a new, multi-year agreement, per which all of Tenet’s hospitals and hospital-affiliated outpatient centers and employed physicians will be phased back into Humana’s network between Jun 1, and Oct 1, 2017.

Tenet and HCA Holdings entered into a definitive agreement for the sale of Tenet’s acute care hospitals and related operations in Houston, TX. The transaction is expected to result in net proceeds of approximately $725 million and is expected to be completed in the third quarter of 2017, subject to customary regulatory approvals and closing conditions.

Tenet Healthcare Corporation Price, Consensus and EPS Surprise

Financial Position

As of Mar 31, 2017, Tenet Healthcare had cash and cash equivalents of $572 million, down 20.1% from year-end 2016.

The company exited the first quarter with $15.071 billion of long-term debt, up 0.05% from year-end 2016.

As of Mar 31, 2017, shareholders’ equity was $430 million, up 3.1% from Dec 31, 2016.

Net cash provided by operating activities for the three months ended Mar 31, 2017 was $186 million. This is $39 million higher than $147 million recorded in the first quarter of 2016.

2017 Outlook

Tenet Healthcare projects revenues in the range of $19.7–$20.1 billion, adjusted EBITDA of $2.525–$2.625 billion and adjusted earnings per diluted share of $1.05–$1.30.

Tenet Healthcare expects adjusted free cash flow of $600–$800 million.

Net income from continuing operations is estimated in the range of $71–$95 million.

Second-Quarter 2017 Outlook

For the second quarter, the company expects revenues in the range of $4.85–$5.05 billion, adjusted EBITDA of $500–$600 million. Net loss from continuing operations is expected between $30 million and 25 million. Adjusted loss per share from continuing operations are expected in the range of a loss of 20 cents to a loss of 10 cents..

Zacks Rank and Performance of Other Insurers

Tenet Healthcare presently carries a Zacks Rank #5 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among the other firms in the medical sector that have reported their first-quarter earnings so far, the bottom line at Centene Corp. (NYSE:CNC) , Quest Diagnostics Incorporated (NYSE:DGX) and UnitedHealth Group Inc. (NYSE:UNH) beat their respective Zacks Consensus Estimate.

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