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Tenet Healthcare Lags Earnings & Revs, Lowers View

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Tenet Healthcare Corp. (THC - Free Report) reported second-quarter 2013 income from continuing operations of $69 million or 66 cents per share, falling short of the Zacks Consensus Estimate of 69 cents per share. Operating earnings improved from $44 million or 41 cents in the year-ago quarter.

Growth in revenues along with cost control measures fueled the year-over-year improvement.

Net loss, including an income from discontinued operations, impairments, restructuring charges, acquisition-related costs, the loss on early extinguishment of debt, litigation and investigation costs and other tax adjustments, was $50 million or 49 cents per share in the reported quarter.

Results compared unfavorably with $6 million or 6 cents loss incurred in the year-ago quarter.

Operational Update

Net operating revenues stood at $2.42 billion, up 6.9% from $2.26 billion in the prior-year quarter. However, reported revenues slightly lagged the Zacks Consensus Estimate of $2.44 billion.

During the reported quarter, Tenet Healthcare’s net patient revenues per adjusted admission increased 2.7% on a year-over-year basis to $12,208, primarily due to improved terms of commercial managed care contracts.

Total admissions declined 3.5% from the year-ago quarter level, while adjusted admissions declined 0.7% year over year due to lower inpatient admissions, which offset higher outpatient visits. Surgeries increased 13.9%, while emergency department visits improved 2.9%.

Bad debt expense, as a percentage of revenues, increased 20 basis points year over year to 7.9%.

Tenet Healthcare posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $336 million in the reported quarter, up 16.7% from $288 million in the prior-year quarter. The improvement was driven by increase in revenues coupled with lower expenses. Adjusted EBITDA margin was 13.9%, expanding 120 basis points year over year.

Financial Position

Tenet Healthcare exited the reported quarter with cash and cash equivalents of $90 million, sinking from $364 million as of Dec 31, 2012. As of Jun 30, 2013, total assets of Tenet Healthcare were $9.2 billion and shareholder equity was $895 million.

Net cash flow from operating activities in the first half of 2013 was $128 million, contracting from $201 million in the year-ago period.

Tenet Healthcare’s capital expenditures slightly increased to $256 million in the first half of 2013 from $252 million in the prior-year period.

Share Buyback

Tenet Healthcare spent $92 million to repurchase 1.998 million shares under its $500 million share buyback program during the reported quarter.


On Jun 24, 2013, Tenet Healthcare announced its plans to acquire a small competitor firm – Vanguard Health Systems Inc. -- in an all-cash deal of $4.3 billion.

The acquisition not only diversifies Tenet’s business portfolio but is aligned with the benefits of the healthcare reforms in the U.S. that requires citizens to have medical insurance coverage, offering ample growth opportunities for healthcare providers as well.

The non-overlapping business of Vanguard also brings in 28 new acute care and specialty hospitals across Texas, increasing Tenet’s exposure to areas of child and heart care. The acquisition further complements the company’s strategy of expanding its operating and competitive leverage in the metropolitan markets via inorganic growth.


Tenet Healthcare announced its adjusted EBITDA guidance of $275 million to $325 million for the third quarter of 2013.

Adjusted EBITDA guidance for 2013 was lowered to $1.25–$1.3 billion from $1.325–$1.425 billion guided earlier, attributable to lower than expected inpatient volumes in the first half of 2013. The mid-point of the guidance represents a 6% hike over $1.203 billion reported in 2012. This guidance also excludes the impact of the acquisition of Vanguard Health Systems, expected to close by the end of this year.

Performance of medical sector stocks

HCA Holdings, Inc. (HCA - Free Report) reported net income of 91 cents, 3.4% higher from the Zacks Consensus Estimate and 7.1% better than the year-ago earnings.

Acadia Healthcare Company, Inc. (ACHC - Free Report) reported net income of 26 cents, a penny ahead of Zacks Consensus Estimate and 8 cents better than the year-ago earnings.

Zacks Rank

Tenet Healthcare carries a Zacks Rank #3 (Hold).

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