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Tenet Healthcare (THC) Q2 Earnings Beat, Trims '22 EPS View

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Tenet Healthcare Corporation (THC - Free Report) reported second-quarter 2022 adjusted diluted earnings of $1.50 per share, which beat the Zacks Consensus Estimate by a whopping 108.3%. However, the bottom line declined 5.7% year over year.

The quarterly results benefited on the back of sound contributions from the Ambulatory Care and Conifer segments. A decline in operating expenses drove THC’s results. However, the benefits were partly offset by weaker contributions from the Hospital Operations and Other segment. Additionally, the cybersecurity incident that happened in April 2022 dampened second-quarter growth prospects of Tenet Healthcare’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), with its unfavorable impact of around $100 million.

Quarterly Operational Update

Net operating revenues of $4.6 billion fell 6.4% year over year in the second quarter. The top line missed the consensus mark by 4.1%.

Adjusted net income from continuing operations of Tenet Healthcare was $163 million, down 5.8% year over year in the quarter under review. Adjusted EBITDA excluding grant income slid 7.5% year over year to $749 million.

Operating expenses of $4.2 billion decreased 4.7% year over year, thanks to reduced salaries, wages and benefits, supplies and other net operating expenses.

Segmental Details

Hospital Operations and Other

The segment reported net operating revenues (which exclude grant income) of $3.6 billion, which slipped 11% year over year due to the divestiture of Miami-area hospitals of Tenet Healthcare in the third quarter of 2021. The adverse impact of the cybersecurity incident also hampered the segment’s revenues. Nevertheless, better pricing yield partly offset the downside suffered by the unit.

On a same-hospital basis, net patient service revenues slid 5.5% year over year to $3.3 billion.

Adjusted EBITDA excluding grant income plunged 23.8% year over year to $339 million in the second quarter.

Ambulatory Care

Net operating revenues of the Ambulatory Care segment totaled $771 million in the second quarter, which improved 16.1% year over year. The upside can be attributed to new service line growth and additional revenues related to the SurgCenter Development (“SCD”) acquisition. However, the segmental results were partly hurt as a result of a lack of revenues arising from United Surgical Partners International's (USPI) urgent care centers that were divested in the second quarter of 2021.

Adjusted EBITDA (excluding grant income) of the segment climbed 15.3% year over year to $317 million.

Conifer

Net operating revenues of $333 million advanced 4.4% year over year in the segment, driven by contractual rate increases and new business growth.

Adjusted EBITDA was $93 million in the second quarter, up 3.3% year over year.

Financial Position (as of Jun 30, 2022)

Tenet Healthcare exited the second quarter with cash and cash equivalents of $1.4 billion, which plunged 42.9% from the 2021-end level.

THC doesn’t have any outstanding borrowings under its $1.5-billion line of credit as of Jun 30, 2022.

Net cash provided by operating activities slumped 51.4% year over year to $119 million in the second quarter.

Business Update

Previously, Tenet Healthcare held a majority stake of around 95% in the ambulatory surgery centers and surgical hospitals of its subsidiary USPI, and the remaining stake was owned by Baylor University Medical Center. On Jun 30, 2022, THC purchased the 5% ownership stake of Baylor University Medical Center in the USPI business for $406 million and consequently owns 100% of USPI’s voting stock.

Per the transaction terms, for each month spanning over the next three years, Tenet Healthcare will pay roughly $11 million on an interest-free basis. The first payment has already been made in the second quarter of 2022.

Third-Quarter 2022 Guidance

Net operating revenues for the third quarter are anticipated between $4.7 billion and $4.9 billion. Adjusted EBITDA is forecast to be $775-$825 million.

Adjusted net income from continuing operations is projected to be within the $125-$150 million band in the third quarter. Adjusted diluted earnings per share (EPS) is estimated between $1.14 and $1.36.

2022 Guidance

Concurrent with the second-quarter results, THC updated its 2022 guidance with respect to certain metrics. For the current year, net operating revenues are expected between $19 billion and $19.4 billion, down from the prior view of $19.5-$19.9 billion. The mid-point of the revised guidance indicates indicating a decline of 1.5% from the 2021 reported figure.

Adjusted EBITDA is still anticipated within $3.375-$3.575 billion, suggesting a 6% growth from the 2021 reported figure. Adjusted EBITDA margin is now expected in the 17.8-18.4% band, up from the prior range of 17.3-18%.

Adjusted net income from continuing operations is forecast between $645 million and $780 million compared with the previous outlook of $645-$775 million. The mid-point of the revised outlook indicates indicating 13.4% decline from the 2021 figure.

Adjusted diluted EPS is estimated within $5.80-$7.00, down from the prior outlook of $5.86-$7.03. The mid-point of the revised guidance implies a 15.6% decline from the reported figure of 2021.

Net cash provided by operating activities is expected between $1.1 billion and $1.4 billion, down from the previous outlook of $1.15-$1.45 billion. The mid-point of the revised guidance suggests a 20.3% plunge from the 2021 reported figure.

Free cash flow is expected within $375 million and $625 million, down from the prior projection of $425-$675 million. The mid-point of the revised guidance indicates a decline of 45.1% from the 2021 reported figure. Capital expenditures are continued to be projected between $725 million and $775 million.

Zacks Rank

Tenet Healthcare carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Medical Sector Releases

Of the Medical sector players that have reported second-quarter results so far, the bottom lines of UnitedHealth Group Incorporated (UNH - Free Report) , Elevance Health Inc. (ELV - Free Report) and Quest Diagnostics Incorporated (DGX - Free Report) beat the Zacks Consensus Estimate.

UnitedHealth Group reported second-quarter 2022 adjusted earnings of $5.57 per share, which beat the Zacks Consensus Estimate by 6.3%. The bottom line improved 19% year over year. Revenues of UNH were $80.3 billion, which climbed 13% year over year in the second quarter. The top line outpaced the consensus mark by 0.9%. The medical care ratio of UnitedHealth Group improved 130 basis points (bps) year over year to 81.5% during the quarter under review.

Elevance Health’s second-quarter 2022 earnings of $8.04 per share outpaced the Zacks Consensus Estimate of $7.72. The bottom line improved 14.4% year over year. Operating revenues of Elevance Health in the second quarter totaled $38,482 million, which rose 15.6% year over year. The top line beat the consensus mark of $38,120 million. As of Jun 30, 2022, medical enrollment of ELV amounted to roughly 47.1 million, which grew 6.1% year over year.

Quest Diagnostics’ second-quarter 2022 adjusted earnings per share of $2.36 beat the Zacks Consensus Estimate by 9.8%. Adjusted earnings, however, plunged 25.8% from the year-ago adjusted figure. Reported revenues in the second quarter dropped 3.8% year over year to $2.45 billion. Revenues of Quest Diagnostics, however, exceeded the Zacks Consensus Estimate by 7.5%. Base Business (excludes COVID-19 testing) revenues of DGX were $2.09 billion in the reported quarter, up 2.9% year over year.