Chains Report Lower-Than-Expected Earnings : Hospital-Management Issues Sink
Hospital-management stocks--including those of three health-care companies headquartered in the Los Angeles area--dropped sharply Wednesday following reports of lower-than-expected earnings from several major hospital chains.
The stock of Hospital Corp. of America tumbled $7.75 to $31.25 and led Wall Street’s most-active list on trading of more than 3.8 million shares. On Tuesday, the Nashville, Tenn.-based company reported that it was likely to have flat earnings for the fourth quarter because of the industrywide trend of lower hospital occupancy rates.
“I think the investor is going to have a harder time making money in the hospital-management sector in the future,” said David L. Goldsmith, partner in Robertson, Colman & Stephens, a securities firm in San Francisco. “The longer-term impact of this development on consumers is that, I think, we are going to see a lot of hospitals close.”
Beverly Hills-based American Medical International Inc., which reported lower quarterly profits Wednesday, also saw its stock price tumble. It fell $4 to close at $17.25 on the New York Stock Exchange.
Elsewhere in the health-care field, Los Angeles-based National Medical Enterprises Inc. slumped $2.375 to $20.25; Humana Inc. of Louisville, Ky., dropped $3 to $25.75; Pasadena-based Beverly Enterprises dropped $3.25 to $33.875, and American Hospital Supply of Evanston, Ill., was down 12.5 cents to $46.75.
The sudden drop of hospital stocks, experts said, was surprising because investors have long known that hospital occupancy rates were falling, spurred by recently imposed federal and private-sector measures to contain hospital costs.
Analysts said that the combination of HCA’s negative outlook and the lower earnings report from American Medical “fanned the flames” of investor concern.
Nationally, hospital occupancy rates have fallen to less than 65% in 1984 from 76% in 1981, according to the American Hospital Assn., an industry trade group.
Yet, despite that drop, hospital chains generally had kept delivering double-digit annual earnings increases. For example, Humana Inc., the leading investor-owned hospital chain, posted an 11% gain in net income to $1.66 per share for the nine months ended May 31, and revenue rose 11% to $1.6 billion during the period.
Many hospital companies have been diversifying into related industries such as home care and health insurance. One of them has been National Medical Enterprises. “People have been talking about a slowdown for years, and NME has been preparing for this possibility” by expanding into nursing homes and other lucrative areas, company spokesman Paul Russell said.
During the company’s annual meeting Wednesday, NME Chairman Richard K. Eamer cited increased acquisition and development activity as reasons for the company’s earnings slump in the fourth quarter.
AMI spokesman Peter Dowd also cited development costs as reasons for the fourth-quarter earnings slump reported by the company Wednesday. Net income for the quarter was $25.8 million, down from $41.5 million last year. For the year, income increased to $163.8 million from $137 million.
“You really can’t hang your head in shame when you made $163 million,” Dowd said, referring to the company’s 1985 earnings. “We expect our revenue growth to continue on an upward trend.”
