Total Renal Care Shares Tumble on Profit Shortfall
Shares of Total Renal Care Holdings Inc. of Torrance, one of the nation’s largest operators of dialysis clinics, collapsed Thursday, signaling continued trouble in the health-care industry as well as ongoing investor flight from the firm.
The stock, which had already lost about a third of its value since the beginning of the year, fell $12.25, or 58%, to $8.75 and was the most briskly traded equity on the New York Stock Exchange.
The company, which remains profitable, lost value in part because management did not warn investors and stock analysts that its earnings for the fourth quarter of last year would be below expectations, analysts said. That news came concurrently with the company’s disclosure Thursday that the Securities and Exchange Commission had asked it to explain the accounting measures used in connection with a recent merger. The SEC’s action is part of a nationwide move to reduce certain write-offs in common use by companies that acquire other firms.
Other troubles, including legal disputes with Blue Cross of Florida and federal regulators, have pressured the stock over the past several months.
“Investors were extremely disappointed by the fact that the company missed earnings . . . and also that it seemed to come to their attention relatively late in the game,” said Robert Lunbeck, an analyst with Hambrecht & Quist in San Francisco. “It doesn’t reflect well on management’s knowledge of all the drivers of the business.”
Total Renal Care would not comment beyond a news release in which the company announced its earnings results and said that it had responded fully to questions raised by the SEC.
That the stock would drop precipitously based on a quarterly report that was actually positive overall says much about the expectations of the type of investor who had been attracted to Total Renal Care’s stock, which over the past year has ranged as high as $36.13.
Indeed, with earnings of 30 cents a share last quarter and a revenue increase of 50%, the company would seem to be an attractive investment.
But the high-growth investors who have focused on health-care stocks over the last several years were expecting 37 cents a share.
These investors are very demanding, analysts said. Once a company begins to have troubles, they flee for greener pastures--like Internet stocks.
It is an abandonment felt throughout the health-care sector, particularly among hospital chains and clinic operators, many of whom sustained high growth by purchasing other companies.
When the firms then ran into problems integrating their various acquisitions or simply ran out of things to buy, the slower growth rates that followed were unacceptable to many investors.
In the case of Total Renal Care, concerns that the company was having trouble merging its operations with Renal Treatment Centers Inc., purchased last year for $1.1 billion, were exacerbated when management failed to signal the earnings shortfall.
“The earnings themselves were only modestly disappointing,” said Kenneth Abramowitz, an analyst with Sanford C. Bernstein in New York. “It’s just that investors are so unforgiving, and the company had continued to tell everybody that everything was fine.”
Investors might eventually return, Abramowitz said, but probably not for months.
The problem was exacerbated by the disclosure that the SEC had requested information on the merger, said analyst John Sullivan of Tucker Anthony in Boston.
“If [Total Renal Care] hadn’t started the day with [lower earnings], I don’t think this SEC thing would be that big a deal. But now, since investors are looking to throw the stock overboard, they’re bringing up the SEC thing.”
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Total Plunge
Total Renal Care stock collapsed Thursday after the company reported weaker-than-expected earnings and an SEC accounting challenge. Monthly closes and latest on the NYSE:
Thursday: $8.75, down $112.25
Source: Bloomberg News
