Tenet Beats on Revenue Growth

Tenet Healthcare Corp. ( THC - Analyst Report ) reported second-quarter 2012 income from continuing operations of 10 cents per share, surpassing the Zacks Consensus Estimate of 5 cents, as well as the prior-year quarter’s earnings of 8 cents.

Operating income for the quarter under review inched up to $42 million from $40 million recorded in the year-ago quarter.

Growth in revenues arising from higher adjusted admissions, outpatient visits and surgeries led to the year-over-year improvement in earnings. However, the growth was partially offset by the rising operating expenses.

Considering post-tax impairment and restructuring charges of $50 million ($100 million pre-tax) or 12 cents per share, related to the anticipated sale of Creighton University Medical Center, net loss came in at $6 million or 1 cent per share versus net income of $55 million or 11 cents per share in the year-ago quarter.

Operational Update

Net operating revenues stood at $2.27 billion, up 6.2% from $2.13 billion in the prior-year quarter. However, reported revenues lagged the Zacks Consensus Estimate of $2.48 billion.

During the reported quarter, Tenet’s net patient revenues per adjusted patient day increased 5.3% on a year-over-year basis to $2,543, primarily due to improved terms of commercial managed care contracts, partially offset by an adverse shift in payer mix.

Admissions edged down 0.4% during the quarter, while adjusted admissions climbed 1.5% year over year. Surgeries increased 4.9% and emergency department visits improved 5.0%.

Bad debt expense increased 13.1% to $190 million from $168 million in the second quarter of 2011.

Tenet posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $288 million in the reported quarter, up 4.7% from $275 million in the prior-year quarter. Adjusted EBITDA for the year-ago quarter includes Health Information Technology incentive payment of $25 million. Adjusted EBITDA margin was 12.7% compared with 12.9% in the year-ago quarter.

Financial Position

Tenet exited the quarter with cash and cash equivalents of $82 million, down from $104 million as of March 31, 2012. As of June 30, 2012, total assets of Tenet were $8.49 billion and shareholders’ equity was $1.18 billion.

Net cash flow from operating activities in the reported quarter was $243 million, soaring up from $178 million in the year-ago quarter. Tenet’s capital expenditures increased to $116 million in the quarter, compared with $82 million in the prior-year quarter.

Guidance

Tenet affirmed its adjusted EBITDA guidance of $1.250–$1.375 billion for 2012. Net operating revenues are expected to be about $9.0–9.3 billion, while operating income is projected to be about $235–317 million.

Additionally shares outstanding as of December 31, 2012 are expected to be approximately 437 million. Consequently, earnings per share for 2012 are expected to be about 54–73 cents.

Further, net income is anticipated to be around $165–270 million.

Peer Take

Universal Health Services Inc. ( UHS - Snapshot Report ) , a rival of Tenet, declared its second-quarter earnings of $1.12 per share, beating both the Zacks Consensus Estimate of $1.11 and the year-ago earnings of $1.04.

Another competitor, HCA Holdings Inc. ( HCA - Snapshot Report ) reported adjusted income of 85 cents per share in the second quarter of 2012, surpassing the Zacks Consensus estimate of 78 cents and the year-ago earnings of 51 cents.

Zacks Rank

Tenet carries a Zacks #2 Rank, implying a short-term Buy rating. Considering the fundamentals, we maintain our long-term Outperform recommendation on the shares.