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Amedisys, Inc. (AMED - Free Report) reported adjusted earnings from continuing operations of 47 cents per share in the second quarter of 2017, up 47.6% year over year. However, earnings missed the Zacks Consensus Estimate of 50 cents.

Excluding adjustments, the company reported earnings of 13 cents a share, reflecting a 59.4% decline from the year-ago quarter.

Second-quarter net service revenues grossed $378.8 million, up 5% year over year. The top line however missed the Zacks Consensus Estimate of $380.62 million.

Quarter in Detail

Within the company's Home Health division, net service revenues totaled $273.7 million (down 0.7%) in the second quarter. Medicare revenues of $198.3 million declined 4.8% year over year, while non-Medicare revenues improved 12.4% year over year to $75.4 million.

Within the Hospice division, net service revenues grossed $90.7 million (up 19.7% year over year), including Medicare revenues of $85.8 million (up 20.3%) and non-Medicare revenues of $4.9 million (up 8.9%).

Recently, the company integrated two additional operating segments within its business – Personal Care and Corporate. At Personal Care, net service revenues totaled $14.4 million, reflecting a 53.2% increase from year-ago number of $9.4 million.

Corporate, on the other hand, did not register any revenue till the end of the second quarter.

Amedisys Inc Price, Consensus and EPS Surprise

 

The company’s gross margin contracted 90 basis points (bps) to 41.9% in the second quarter, while gross profit rose 3.1%. Expense on salaries and benefits declined 3.1% to $74.9 million. Other expenses also dropped 8.8% to $41.6 million. Adjusted operating income of $42.5 million in the reported quarter reflects an increase of 35.8% from the year-ago adjusted operating income of $31.3 million. Operating margin expanded 250 bps to 11.2% from the year-ago figure.

Amedisys exited the second quarter with cash and cash equivalents of $59.2 million, compared with $48.3 million at the end of the preceding quarter. The company's long-term obligations (excluding current portion) were $83.2 million in the reported quarter, down from $87.8 million in the year-ago quarter. Year-to-date net cash provided by operating activities was $63.3 million, compared with $26.9 million in the year-ago period.

Our Take

Amedisys ended the second quarter on a dismal note, with earnings and revenues both missing estimates. At the Home Health division, the company witnessed a decline in Medicare revenues while there was an improvement in non-Medicare revenues. At Hospice, the company registered strong growth across all segments. Amedisys is currently exploring opportunities in the Home Health and Hospice segments. The company’s favorable demographic trend and strategic acquisitions encourage us as well. Moreover, the company has been witnessing growth in the personal care segment on synergies from acquisitions.

Meanwhile, though we expect synergies from the Tenet Healthcare acquisition to boost operations, escalating operating expenses and a declining gross margin continue to raise concerns. Also, an intense competitive landscape and regulatory concerns continue to pose challenges in the home health and hospice industry.

Zacks Rank & Other Key Picks

Currently, Amedisys carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks worth considering in the broader medical sector include PetMed Express, Inc. (PETS - Free Report) , Becton, Dickinson and Company (BDX - Free Report) and Quest Diagnostics Inc. (DGX - Free Report) . Notably, PetMed sports a Zacks Rank #1 (Strong Buy), while Becton, Dickinson and Company and Quest Diagnostics carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10.00%. The stock has gained around 23.1% over the last month.

Becton, Dickinson and Company has a long-term expected earnings growth rate of 11.25%. The stock has gained around 4.0% over the last month.

Quest Diagnostics has a long-term expected earnings growth rate of 8.39%. The stock has gained around 19.5% over the last six months.

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