Amedysis Hit by Charges, Guides Low

Home health care provider, Amedisys (AMED - Snapshot Report) reported a loss of $14.73 per share in the third quarter of 2011, compared with earnings of 76 cents per share in the year-ago quarter. However, Amedisys recorded $574.1 million ($434.3 million after tax) as impairment charges based on the decline in market capitalization and disappointing performance over the past few quarters. After considering this and some other adjustments, adjusted EPS came in at 36 cents, which was well below the Zacks Consensus Estimate of 51 cents and 59.5% down from the year-ago quarter.

Amedisys primarily derives revenue from its home health and hospice agencies by providing a variety of services at homes. Net service revenue stood at $374.9 million in the reported quarter, beating the Zacks Consensus Estimate of $373 million but down 6.5% year over year. The decline in net service revenue was mainly due to a 14.9% drop in same-store Episodic-based sales.

Amidst this difficult situation, the company was dealt with another major blow when its Chief Operating Officer Mike Snow announced his resignation. The current Chief Financial Officer, Mr. Dale Redman will serve as the Executive Vice President till he retires in January. We believe the recent management churn will further weaken the company’s persisting volatile position in the backdrop of a highly uncertain home nursing reimbursement environment (an expected reduction in Medicare reimbursements to hit the home health-care sector in another year).

All these major headwinds, coupled with a lower guidance for fiscal 2011 resulted in a 23% decline in the company’s share prices at the close of the market on Tuesday.

Gross margin decreased 390 basis points (bps) to 45.1% in the third quarter of 2011. Adjusted operating margin (excluding the effect of depreciation and amortization, provision for doubtful accounts as well as goodwill and other intangibles impairment charge) witnessed a massive 430 bps year-over-year decline to 8.3%.

Amedisys exited the reported quarter with cash and cash equivalents of $29.5 million, compared with $120.3 million at the end of December 2010.

Guidance

Based on the disappointing quarter, Amedisys lowered its EPS guidance for 2011. The company expects EPS in the range of $1.90–$2.00 (previous range being $2.20–$2.40), lower than the current Zacks Consensus Estimate of $2.31. The company reaffirmed its revenue guidance for 2011 (in the range of $1.47–$1.50 billion), in line with the Zacks Consensus Estimate of $1.50 billion.

Presently, the company retains a short-term Zacks #5 (Strong Sell) Rank.

Read the full analyst report on AMED