Tenet Profit Up 20%, Beating Forecasts
Hospital operator Tenet Healthcare Corp. of Santa Barbara said Tuesday that its fiscal first-quarter profit rose 20% as its hospitals admitted more patients and charged health insurers higher prices.
Net income rose to $154 million, or 48 cents a share, in the quarter ended Aug. 31, from profit from operations of $128 million, or 39 cents, a year ago. Revenue was little changed at $2.89 billion, compared with $2.87 billion a year earlier when Tenet owned 20 more hospitals.
Admissions to hospitals owned more than a year rose 4.3%, the strongest growth since Tenet began reporting the statistic in 1991. Tenet also reduced bad debt and cut expenses for labor and supplies.
“I think this is a strong precursor for what will be a good earnings season for the hospital sector,” said Lehman Bros. analyst Adam Feinstein, who rates the stock “outperform.”
Tenet, which owns or operates about 110 hospitals in 17 states, was expected to earn 45 cents a share, the average estimate of analysts polled by First Call/Thomson Financial. Tenet said Sept. 12 that it expected to beat estimates at that time of 44 cents a share.
Tenet shares fell 13 cents to close at $37.94 on the New York Stock Exchange after trading at a 52-week high of $39.13.
Tenet, which releases its earnings first among hospital companies, is seen as a bellwether for the industry.
Tenet expects its percentage growth in earnings per share to slow to the mid-teens for the entire fiscal year, the company said. Growth in revenue per admission “may moderate” because some of it is based on one-time gains from managed-care contracts, said Thomas Mackey, chief operating officer. The rate of earnings growth will be strongest in the first half, the company said.
Last year the company earned $1.81 a share.
Cash flow from operations was particularly strong in the quarter, totaling $271 million--a record level for any first quarter. On a rolling 12-month basis, cash flows from operations hit a new record high of $1.13 billion.
Mackey said Tenet gained admissions from a new contract with Kaiser Permanente in Southern California, from exclusive contracts with Aetna Inc. and other insurers, and by expanding three emergency rooms in Florida.
Tenet is raising prices it charges insurers by 3% to 6% when it renews contracts and is shifting from contracts that pay fixed rates per patient to those based on hospital costs, Mackey said.
Chief Executive Jeffrey Barbakow also criticized a proxy challenge to oust him and two other board members at the Oct. 11 annual meeting, calling dissident shareholder M. Lee Pearce “a committee of one.”
Allegations that the firm is run for the sake of executives are “just plain offensive,” Barbakow said.
The firm said it reduced debt by $244 million in the quarter. Its total debt at quarter’s end was $5.4 billion, down $1.1 billion from a year ago.
It marks the fifth consecutive quarter that Tenet has met or beaten estimates, said Donaldson, Lufkin & Jenrette Inc. analyst John Hindelong.
Tenet also said it has ended contracts with about 50% of physician practices it owns.
