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Select Medical Holdings Corporation’s (SEM - Snapshot Report) fourth quarter earnings of 28 cents breezed past the Zacks Consensus Estimate by 12%. Results also improved 12% year over year from 25 cents earned in the year-ago quarter.

Net income attributable to Select Medical Holdings Corporation was $39.4 million in the reported quarter, up 6.9% year over year.

Quarterly Operational Update

Net operating revenues increased 3.2% year over year to $741.1 million in the fourth quarter. However, it remained below the Zacks Consensus Estimate of $743 million.

Income from operations increased 9.4% year over year to $80.9 million.

Total expenses in the quarter increased 2.4% year over year to $660.2 million. The increase was driven by higher cost of services (up 3.4% year over year), and general and administrative expenses (up 10.8% year over year).

Adjusted earnings before interest tax, depreciation and amortization (EBITDA) increased 5.3% year over year to $98.8 million.

Quarterly Segment Update

The Specialty Hospitals segment reported net operating revenues of $556.0 million, up 4.1% year over year. Number of patient days increased 0.2% year over year to 0.3 million. Number of admissions declined 0.2% year over year to 13,743.

The Outpatient Rehabilitation segment reported net operating revenues of $185.1 million, up 0.5% year over year. Number of clinics increased 2.6% year over year to 979. Number of visits increased 3% year over year to 1.1 million.  

Full Year Highlights

Adjusted earnings were $1.07 per share exceeding the Zacks Consensus Estimate of $1.05 per share. Results were up 27.4% year over year from 84 cents reported in the year-ago period.

Including a loss on early retirement of debt net of tax worth $3.8 million associated with the Sep 12, 2012 redemption of $275 million of the 7 5/8% senior subordinated notes, net income attributable to Select Medical was $148.2 million, up 37.4% year over year.

Net operating revenues for full year 2012 increased 5.2% year over year to $2.9 billion.

Adjusted EBITDA in 2012 increased 5.2% year over year to $405.8 million.

Share Repurchase Update

In 2012, Select Medical spent $46.8 million to repurchase 5.7 million shares.

On Feb 20, 2013, management increased its $250 million share buyback authorization to $350 million and extended the program till Mar 31, 2014.

Dividend Update

The company declared a special cash dividend of $1.50 per share, totaling $210.9 million on Oct 30, 2012. It was paid on Dec 12, 2012 to the shareholders at the close of business on Dec 5, 2012.

Refinancing Update

On Feb 20, 2013, Select Medical entered into a credit extension amendment to provide an additional $300 million to term loan tranche (Series B Tranche B Term Loan). The company intends to use the proceeds to redeem its outstanding 7 5/8% senior subordinated notes due 2015, to fund the redemption of the senior floating rate notes of Select Medical due 2015 and to partially pay for the balance outstanding under Select's revolving credit facility. The remaining will be paid on Feb 20, 2016.

Select and Select Medical also instructed U.S. Bank Trust National Association to deliver a permanent redemption notice to the holders of all of Select's outstanding 7 5/8% senior subordinated notes due 2015 and all of Select Medical's outstanding senior floating rate notes due 2015.  All of these will be redeemed at 100% of the principal amount plus any accrued and unpaid interest to the redemption date on or about Mar 22, 2013.

Financial Position

Select Medical exited 2012 with cash of $40.1 million, up 233.3% year over year.

As of Dec 31, 2012, total assets of the company were $2.8 billion, down 0.4% year over year.

The long term debt of the company, as of Dec 31, 2012, was $1.5 billion, up 5.2% year over year.

Net cash flow from operating activities in 2012 was $298.7 million, up 37.6% year over year.

Shareholders’ equity declined 11.9% year over year to $745.5 million at 2012 end. The debt to capital ratio of the company increased 400 basis points year over year to 66%.

2013 Guidance

Select medical projects earnings per share in 2013 between 98 cents and $1.04 on net operating revenues of $2.95 billion–$3.05 billion.

The company also expects to deliver adjusted earnings before interest, tax depreciation and amortization (EBITDA) in the range of $400 million–$415 million.

It estimates effective tax rate at about 40% for 2013.

Performance of Few Other Property and casualty Insurers

Coventry Health Care Inc. reported fourth-quarter 2012 operating earnings per share of 88 cents, which surpassed the Zacks Consensus Estimate of 67 cents as well as the prior-year earnings of 60 cents.

Molina Healthcare Inc. (MOH - Analyst Report) reported fourth-quarter 2012 net earnings per share of 54 cents, significantly surpassing the Zacks Consensus Estimate of 21 cents. Results were up 5.9% year over year from 51 cents reported in the year-ago quarter.

U.S. health insurer, Aetna Inc. (AET - Analyst Report) reported its fourth quarter 2012 earnings of 94 cents per share a couple of pennies shy of the Zacks Consensus Estimate of 96 cents per share. Earnings also decreased 3% year over year.

Zacks Rank

Select Medical currently carries a Zacks Rank #4 (Sell).
 

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