Safeguard Health Enterprises Reports Sharp Drop in Third-Quarter Earnings

Unable to get costs under control, Safeguard Health Enterprises Inc. said Friday that despite increased revenues, net earnings during the third quarter and nine months ended Sept. 30 fell sharply from a year earlier.

Undaunted, company management said it expects to return to its former level of profitability in 1987.

And to emphasize the short-term nature of the downturn, Safeguard’s board of directors authorized management to repurchase up to 10% of the company’s shares.

The Anaheim dental health maintenance organization said net earnings during the quarter fell 56% to $384,000 from $865,000 a year earlier. Revenues increased 21% to $15.6 million from $12.9 million in 1985.

For the nine months, net earnings fell 45% to $1.3 million from $2.4 million a year earlier. Nine-month revenues, however, climbed 26% to $46 million from $36.4 million last year.

The results mark the third-consecutive quarter of declining earnings for Safeguard, the nation’s largest publicly traded dental HMO. As in previous quarters this year, company officials blame the lower earnings on losses at several start-up dental offices Safeguard owns.

W. Bruce Steever, who recently joined Safeguard as its chief financial officer, said earnings during the current quarter will also be below last year, but the company expects to be “back on track in 1987.”

On Thursday, Safeguard’s directors authorized the repurchase of up to 800,000 shares of its own common stock, or about 10% of the total number of shares outstanding. The company said the transactions will take place both on the open market and in private transactions.

Safeguard stock has traded for as much as $13.25 a share during 1986, but its value has fallen sharply this year as a result of weakened earnings, hitting a new 12-month low of $5 a share during September. The NASDAQ-listed issue closed Friday at $6.25 a share.

“We believe that our common stock at the current price level is an attractive investment for Safeguard,” Steven Baileys, Safeguard’s president, said in a prepared statement. The company added that there is no time limit on the repurchases.