CPC Reports 98% Drop in Earnings; Stock Sinks 27%

Community Psychiatric Centers Inc., the latest victim in the troubled psychiatric care industry, said Friday that its third-quarter earnings plunged 98%. In heavy New York Stock Exchange trading, its share price sank 27% on the news.

The company blamed pricing pressures and millions of dollars in uncollected bills for its dismal performance.

Also Friday, the company ratcheted down its offer to buy two hospital companies based in Austin, Tex.--Healthcare International Inc. and HealthVest--after examining their financial records. Stock analysts estimated the revision at about 10% less.

The sharp drop in earnings stunned most of Wall Street. The stock, which had fallen $2.75 Thursday, plummeted $6.25 Friday to close at a 52-week low of $17.25, with 5.2 million shares traded.

“You’re basically seeing the ravages of shareholders disappointed,” said Daniel T. LeMaitre, a health care analyst at Cowen & Co., a Boston brokerage. LeMaitre had expected earnings of about 43 cents a share--lower than the average Wall Street forecast of 48 cents per share.

Instead, Community Psychiatric reported earnings of 1 cent per share on total revenue of $90.35 million, compared with earnings of 43 cents per share on revenue of $94.86 million for the same quarter last year.

The company attributed some of the slump to a onetime, $23-million reserve against uncollected bills.

Of that, $13 million was for general accounts receivable, $7 million was to cover late payments by the Canadian government for psychiatric patients it sent to the United States for treatment and $3 million were uncollected bills from Horizon Hospital in Pomona, which Community Psychiatric shut down Aug. 31, company spokeswoman Suzanne Hovdey said.

The company expects eventually to collect some of the money, she said.

However, even discounting that non-recurring charge, baseline earnings would have been just 32 cents per share, compared to 38 cents per share for the same quarter last year. The drop reflects sluggish hospital admissions, shorter patient stays and a drop in net revenue per patient, said analyst Rae Alperstein of Kemper Securities Group Inc. in Los Angeles.

“I initially believed that the market was overreacting, but then I realized that business was really bad,” Alperstein said.

“It sounds like some of the very tough industry trends are catching up to them,” LeMaitre agreed.

Net revenue per patient day, for example, dropped 1.8%, while admissions grew just 2.3%, compared to a 9.9% increase in the second quarter. The average patient stay was 7% shorter than during the same quarter of 1990 as insurance companies and other health providers tried to cut costs.

Earnings were also hurt by discounting. Hovdey said the number of patients being treated under discount plans swelled about 10%.

Thursday’s stock fall began after John Hindelong, an analyst at Donaldson, Lufkin & Jenrette Securities Corp. in New York withdrew his longstanding “buy” recommendation. Hindelong said the company had indicated that revenue was sluggish, and when it did not release earnings on schedule earlier this week, he suspected trouble.

“I didn’t realize earnings would be quite this low,” he said.

At Friday’s $17.25 price, however, Hindelong said he thinks the stock has “speculative merit.”

Community Psychiatric runs 50 hospitals in 18 states and is seeking to add 1,400 beds to its 5,100 beds by buying Healthcare and HealthVest. Hovdey said the chain hopes to offset shorter patient stays by increasing patient volume through buying more hospitals.

Alperstein and other analysts had valued Community Psychiatric’s initial offer for the Texas companies at roughly $76 million and the assumption of $254 million in debt. She estimated Friday’s offer at less than $46 million, plus the debt.

HealthVest president Clark Abbott, who valued the old offer at a total of $350 million and had not yet analyzed the new one, said major shareholders were “not nearly as pleased.”

Abbott said another potential suitor, Greenery Rehabilitation Corp. of Newton, Mass., might soon make a more attractive bid.

Greenery, which controls 34% of Healthcare’s voting stock and is also a creditor, was cool to Community Psychiatric’s first offer and is already considering making a counter-bid for Healthcare and HealthVest, director and general counsel Barry M. Portnoy said.

“If we weren’t happy with the old one, we’re a lot less happy with this one, and it’s more likely than not that we will make an offer,” Portnoy said. “In fact, we expect to.”

Community Psychiatric Centers

In the third quarter ended Aug. 31, Community Psychiatric Centers Inc. reported net earnings of $435,000 as its revenues dropped 4.75% to $90.3 million. The company attributed the slump to a one-time $23-million write-off as well as pricing pressures.

Figures are in thousands, except per-share data.

3rd Qtr 3rd Qtr 9 Months 9 Months 1991 1990 1991 1990 Revenue $90,347 $94,858 $311,157 $282,181 Net income 435 19,737 48,292 62,476 Per share .01 0.43 1.04 1.35

Source: Community Psychiatric Centers Inc.