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Tenet Healthcare Corp. (THC - Analyst Report) reported first-quarter 2013 income from continuing operations of $34 million or 33 cents per share, surpassing the Zacks Consensus Estimate of 28 cents per share. Operating earnings improved from $13 million or 15 cents in the year-ago quarter.

Growth in revenues, largely driven by improved pricing, fueled the year-over-year improvement along with cost control measures.

Net loss, including $75 million from an industry-wide Medicare inpatient prospective payment settlement and a loss from discontinued operations of $2 million or 2 cents a share, along with impairments, restructuring charges, acquisition-related costs and the loss on early extinguishment of debt, was $88 million or 85 cents per share in the reported quarter.

Results compared unfavorably with $58 million or 53 cents earned in the year-ago quarter. Net income for the first quarter of 2012 included $1 million or 1 cent per share related to income from discontinued operations.

Operational Update

Net operating revenues stood at $2.39 billion, up 3.7% from $2.30 billion in the prior-year quarter. However, reported revenues lagged the Zacks Consensus Estimate of $2.62 billion.

During the reported quarter, Tenet Healthcare’s net patient revenues per adjusted admission increased 1.6% on a year-over-year basis to $11,884, primarily due to improved terms of commercial managed care contracts and increased Medicare reimbursement rates.

Total admissions declined 4% from the year-ago quarter level, while adjusted admissions declined 2.5% year over year due to lower inpatient admissions, which offset higher outpatient visits. Surgeries increased 8.8%, while emergency department visits improved 3.1%.

Bad debt expense, as a percentage of revenues, increased 40 basis points year over year to 8.0%.

Tenet Healthcare posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $274 million in the reported quarter, up 16.6% from $235 million in the prior-year quarter. Adjusted EBITDA margin was 11.5%, declining 200 basis points year over year. 

Financial Position

Tenet Healthcare exited the reported quarter with cash and cash equivalents of $95 million, sinking from $364 million as of Dec 31, 2012. As of Mar 31, 2013, total assets of Tenet Healthcare were $8.9 billion and shareholder equity was $969 million.

Net cash outflow from operating activities in the reported quarter was $32 million, contracting from $42 million outflow in the year-ago quarter.

Tenet Healthcare’s capital expenditures decreased to $133 million in the quarter from $136 million in the prior-year quarter.

Share Buyback

Tenet Healthcare spent $100 million to repurchase 2.5 million shares under its $500 million share buyback program during the reported quarter.

Guidance

Tenet Healthcare announced its adjusted EBITDA guidance of $325 million to $375 million for the second quarter of 2013. The guidance includes $54 million associated with the expected approval of the managed care portion of the 30-month California Provider Fee program along with $31 million from the recognition of Health Information Technology (HIT) incentives.

Adjusted EBITDA guidance for 2013 was affirmed at $1.325–$1.425 billion. Operating income is projected at about $821–$951 million.

Additionally, shares outstanding as of Dec 31, 2013 are expected to be approximately 104 million. Consequently, adjusted earnings per share for 2013 are expected to be about $2.31–$3.31 for 2013.

Further, net income of Tenet Healthcare in 2013 is anticipated at around $114–$224 million. Net operating revenue is expected to be around $9.8–$10.1 billion.

Zacks Rank

Tenet Healthcare carries a Zacks Rank #4 (Sell). Other companies in the medical sector worth considering are VCA Antech Inc. (WOOF - Snapshot Report) – Zacks Rank #1 (Strong Buy), Centene Corp. (CNC - Snapshot Report) – Zacks Rank #2 (Buy) and Coventry Health Care Inc. – Zacks Rank #2 (Buy).

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