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AmSurg Corp. (AMSG - Analyst Report) reported earnings per share (EPS) of 51 cents in the second quarter of fiscal 2012, up 21% year over year. Reported EPS was also ahead of the Zacks Consensus Estimate by a penny and remained at the higher end of the company’s guidance range of 49−51 cents. Revenues during the quarter increased 23% year over year to $231.6 million and exceeded the Zacks Consensus Estimate of $229 million.

The significant upside in revenues during the quarter represented the third consecutive quarter of over 20% sales growth. This was primarily attributable to a 3% rise in same-center revenues combined with an increase in the number of operating centers to 228 at the end of the second quarter 2012 (from year-ago 206 centers ). Further, the centers delivered a 14% year-over-year increase in procedures with 8% jump in revenue per procedure.

Moreover, AmSurg opened one de novo center during the reported quarter and had seven centers under letter of intent at the end of the quarter.

Operating expenses increased 25.8% year over year to $152.8 million due to higher salaries and benefits (up 24.2% to $70.9 million), supply cost (up 38.6% to $33.2 million) and other operating expenses (up 20.5% to $48.7 million). As a result, operating margin declined 108 basis points to 34.15% during the quarter.

AmSurg exited the quarter with $37.6 million in cash and cash equivalents versus $40.7 million at the end of fiscal 2011, and had $159 million available under its revolving credit facility. For the second quarter, net cash flows from operating activities were $74.5 million compared with $61.7 million in the year-ago quarter.

Outlook

AmSurg reiterated its EPS and revenues guidance for fiscal 2012. The company expects adjusted EPS in the range of $1.97−$2.01 (the current Zacks Consensus Estimate is $2.01) on revenues of $905−$925 million (the Zacks Consensus Estimate is $922 million) for 2012. However, the company tightened its same-center revenue growth forecast to 2−3% (earlier guidance was 1−3%). Net cash flow provided by operating activities, less distribution to non-controlling interests, is expected to be in a range of $115 million to $120 million for 2012 (unchanged).

Additionally, AmSurg also provided its EPS guidance for the third quarter of fiscal 2012. The company expects EPS in the range of 47−49 cents, lower than the current Zacks Consensus Estimate of 50 cents.

Recommendation

We are encouraged by AmSurg’s strong second quarter result with improvement in same-center sales in successive quarters even amid uncertain economic conditions and high unemployment. We expect the company to benefit over the long term from favorable industry dynamics.

For the past few years, government programs, private insurance companies and managed care organizations have implemented various cost-cutting measures to limit healthcare expenditure. Demand for lower-risk, high-volume surgical procedures performed by ambulatory surgery centers (ASC) continue to grow, consistent with the demographics of an aging US population. Government agencies have been undertaking initiatives to curtail healthcare expenditure resulting in a shift toward ASCs from traditional hospitals. However, competitive landscape is tough with the presence of players such as HCA Holdings, Inc. (HCA - Snapshot Report).

Currently, AmSurg retains a short-term Zacks #3 Rank (Hold rating). Over the long term, we are Neutral on the stock.

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