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DaVita HealthCare Partners Inc. (DVA - Analyst Report) reported fourth-quarter 2012 operating earnings of $1.68 per share, beating the Zacks Consensus Estimate of $1.57 as well as $1.56 per share reported in the prior-year quarter. Operating income amounted to $173.3 million, increasing from $148.1 million in the year-ago quarter.

Including $17.5 million or 17 cents per share related to transaction expenses associated with the acquisition of HealthCare Partners (HCP), debt refinancing charges and expenses associated with a legal settlement, net income attributable to DaVita’s shareholders amounted to $155.8 million or $1.51 per share, compared with $148.1 million or $1.56 per share in the year-ago quarter.

Operational Update

Net operating revenue in the reported quarter increased 38% year over year to $2.48 billion from $1.79 billion. Top line surpassed the Zacks Consensus Estimate of $2.34 billion.

Total operating expenses and charges climbed 43% to $2.09 billion from $1.46 billion in the fourth quarter of 2011.

DaVita provided administrative services across 1,954 outpatient dialysis centers in the U.S., serving approximately 153,000 patients during the reported quarter. Additionally, the company provided administrative services in 36 outpatient dialysis centers in 8 non-U.S. countries, serving approximately 2,200 patients.

During the reported quarter, DaVita acquired 22 centers and opened 22 centers in the U.S., while 10 centers were acquired and 2 were opened outside the U.S.

Total U.S. treatments for the reported quarter came in at approximately 5.74 million or 72,161 treatments per day. This represents a per day increase of 9.1% over the year-ago quarter. Growth of non-acquired treatment in the quarter stood at 4.7%.

The company's effective tax rate was 34.7% 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 in the reported quarter was 38.5%.

Segment Update    

Segment wise, total revenue from the Dialysis and Related Lab Services segment came in at $1.83 billion during the quarter, against $1.67 billion in the prior-year quarter.

Operating income for the segment expanded 2% year over year to $362 million in the reported quarter from $356 million in the year-ago quarter.

HealthCare Partners generated revenues of $477 million and operating income of $67 million in the reported quarter.

Ancillary Services and Strategic Initiatives generated revenues of $178 million, up from $132 million in the year-ago quarter. However, the segment recorded an operating loss of $15 million in the reported quarter, wider than $14 million loss incurred in the year-ago quarter.

Full-Year 2012 Highlights

For 2012, DaVita reported operating income per share of $6.25, which surpassed the Zacks Consensus Estimate of $6.10 and prior-year earnings of $5.11. Operating income amounted to $612.4 million, compared with $492.4 million in 2011.

Including $76.4 million or 78 cents per share related to transaction expenses associated with the acquisition of HCP, debt refinancing charges and expenses associated with a legal settlement, net income came in at $536.0 million or $5.47 per share against $478.0 million or $4.96 per share in 2011.

Net income for 2011 includes an after-tax non-cash goodwill impairment charge of $14.4 million or 15 cents per share. Net operating revenue was $8.19 billion, increasing from $6.73 billion in 2011, while total operating expenses and charges increased to $6.89 billion from $5.58 billion.

Financial Update

Operating cash flow amounted to $200 million during the quarter under review. For 2012, operating cash flow amounted to $1.10 billion, reflecting a 7% decrease from $1.18 billion in 2011. Free cash flow in the reported quarter was $83 million and full year free cash flow amounted to $715 million.

Total assets at the end of 2012 were $16.04 billion, up from $8.90 billion as of Dec 31, 2011. Long-term debt increased to $8.33 billion from $4.42 billion as of Dec 31, 2011. Shareholders’ equity as of Dec 31, 2012 amounted to $3.93 billion, up from $2.27 billion at 2011 end.

Guidance

Operating income for 2013 is expected around $1.75–$1.90 billion, including the operating income from HCP. Additionally, DaVita announced its operating income guidance for the dialysis services and related ancillary businesses for 2013 of $1.35–$1.45 billion.

Operating income from HCP is expected to be $400–$450 million in 2013. The company expects the effective tax rate attributable to DaVita in the range of 39.5%–40.5% for 2013. Operating cash flow guidance for 2013 stands at $1.35–$1.50 billion.

Zacks Rank

DaVita currently carries a Zacks Rank #3 (Hold). Another healthcare company Gentiva Health Services Inc. (GTIV - Analyst Report) reported fourth-quarter 2012 operating earnings of 31 cents per share, which lagged the Zacks Consensus Estimate of 35 cents as well as the year-ago quarter level of 37 cents per share.

Operating income of $9.7 million also declined from $11.3 million in the year-ago quarter. Other healthcare companies worth considering are LHC Group, Inc. (LHCG - Snapshot Report) and RadNet, Inc. (RDNT - Snapshot Report), which carry a Zacks Rank #2 (Buy).

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