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DaVita HealthCare Partners Inc. (DVA - Analyst Report) reported third-quarter 2013 operating earnings of 98 cents per share. The results surpassed the Zacks Consensus Estimate of 96 cents per share as well as the year-ago earnings of 76 cents per share.

The improvement came on the back of lower tax expenditures and the acquisition of HealthCare Partners. Strong performance in the ancillary services segment also added to the improvement.

Including contingent earn-out obligation adjustment of 34 cents per share, net income attributable to DaVita’s shareholders amounted to 64 cents per share, compared with 75 cents per share in the year-ago quarter. The year-ago results include debt refinancing charges of 1 cent.

Operational Update

Total revenue in the reported quarter increased 54.1% year over year to approximately $3 billion from $1.95 billion. Top line was a tad higher than the Zacks Consensus Estimate of $2.96 billion.

Total operating expenses and charges climbed 63.3% to $2.6 billion from $1.6 billion in the third quarter of 2012.

DaVita provided dialysis services across 2,108 outpatient dialysis centers, serving approximately 166,000 patients during the reported quarter. Of these, 2,042 outpatient dialysis centers are located in the U.S. and 66 are located in 10 non-U.S. countries.

During the reported quarter, DaVita acquired 10 dialysis centers and opened 25 centers in the U.S. Additionally, the company acquired 18 dialysis centers outside the U.S.

Total U.S. dialysis treatments for the reported quarter came in at approximately 6.03 million or 76,388 treatments per day. This represents a per day increase of 7.3% over the year-ago quarter. Growth of non-acquired treatment in the quarter was 5.5%.

DaVita’s effective tax rate was 37.3% 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 42.5%.

Segment Update     

Segment wise, total revenue from the Dialysis and related Lab Services segment came in at $1.98 billion during the quarter, against $1.8 billion in the prior-year quarter. Operating income for the segment declined to $309 million in the reported quarter from $367 million in the year-ago quarter.

HealthCare Partners generated revenues of $803 million in the reported quarter. Operating income in the segment stood at $98 million. This segment experienced sequential improvement on both counts due to the acquisition of the Arizona Integrated Physicians. However, owing to large MA rate cuts, 2014 is expected to be a challenging year for the segment and operating income is expected to decline.

Ancillary services and strategic initiatives generated revenues of $226 million, up from $167 million in the year-ago quarter. However, the segment recorded an operating loss of $9 million in the reported quarter, narrower than $13 million incurred in the year-ago quarter.

Financial Update

DaVita’s operating cash flow amounted to $733.1 million during the quarter under review, up from $366.6 million in the year ago quarter, due to the timing of compensation payments, other working capital items and cash taxes. Free cash flow in the reported quarter was $643.2 million, up from $271.4 million in the third quarter of 2012. Total assets at the end of the reported quarter were $16.8 billion, up from $16.0 billion as of Dec 31, 2012.

Long-term debt of DaVita declined to $8.2 billion from $8.3 billion as of Dec 31, 2012. Shareholder equity as of Sep 30, 2013 amounted to $4.4 billion, up from $3.9 billion at 2012-end.

Stock Split

During the third quarter of 2013, the board of directors of DaVita approved a 2:1 stock split in the form of a stock dividend paid on Sep 6, 2013 to stockholders of record on Aug 23, 2013.

Guidance

DaVita’s operating income guidance range for 2013 was narrowed to $1.88–$1.92 billion from $1.83–$1.93 billion. Additionally, DaVita raised the operating income guidance for the dialysis services and related ancillary businesses for 2013 to $1.50–$1.52 billion from $1.45–$1.50 billion.

DaVita reduced the upper end of the guidance for operating income for HCP to $400 million. The reduced guidance now stands at $380–$400 million, down from the previous guidance of $380–$430 million.

DaVita also raised its operating cash flow guidance to $1.60–$1.70 billion from $1.40–$1.50 billion, guided earlier.

Others

AmSurg Corp.’s (AMSG - Analyst Report) third-quarter 2013 earnings per share (EPS) from continuing operations of 53 cents were up 10% year over year, marking the company’s second consecutive quarter of double-digit growth. However it remained in line with the Zacks Consensus Estimate and also touched the upper end of the company’s guidance range of 51−53 cents.

Gentiva Health Services Inc. (GTIV - Analyst Report) reported third-quarter 2013 adjusted operating earnings of 15 cents per share, which missed the Zacks Consensus Estimate of 22 cents as well as the year-ago quarter level of 32 cents per share.

Zacks Rank

DaVita currently carries a Zacks Rank #3 (Hold). Among other health service providers HEALTHSOUTH Corp. (HLS - Snapshot Report) carrying a Zacks Rank #2 (Buy) is worth considering.

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