AmSurg Corp.’s (AMSG) first-quarter 2013 adjusted earnings per share ("EPS") of 52 cents were 2 cents ahead of the year-ago quarter EPS and in line with the Zacks Consensus Estimate. The adjusted EPS also met the high end of the company provided guidance range. However, considering one-time pre-tax gain related to the deconsolidation of a surgery center, reported EPS stood at 56 cents.
Revenues during the quarter increased 14% year over year to $260.1 million, almost in line with the Zacks Consensus Estimate. In spite of a 2% decline in same-center revenues, the significant upside in sales was primarily attributable to the acquisition of 17 centers in 2012, including 14 centers in the fourth quarter and the opening of a de novo in 2012.
In the first quarter, AmSurg entered a joint venture with a hospital system and accordingly held controlling interest in one surgery center for the joint venture. As mentioned earlier, this resulted in a $2.2 million gain on the deconsolidation of this surgery center. AmSurg expects this alliance to create future growth opportunities in this market. However, the quarter’s disappointing same-center revenues were primarily the result of two less business days in this period, which had a negative impact of 300 basis points (bps).
Operating expenses increased 13.9% year over year to $172.5 million due to higher salaries and benefits (up 13.1% to $81.6 million), supply cost (up 17.3% to $37.6 million) and other operating expenses (up 13% to $53.3 million). Operating margin, as a result, contracted 21 bps to 33.7% during the quarter.
AmSurg exited the quarter with $42.4 million in cash and cash equivalents versus $46.4 million at the end of 2012, and had $208 million available under its revolving credit facility. For the first quarter, net cash flow from operating activities was $73.9 million compared with $69.1 million in the year-ago quarter.
AmSurg reiterated its 2013 revenue guidance in the range of $1.06−$1.09 billion. The current Zacks Consensus Estimate of $1.07 billion remains within the range. However, the company reduced its fiscal 2013 EPS outlook. It now expects the fiscal earnings to remain within $2.13−$2.18 (earlier range being $2.18−$2.23). The current Zacks Consensus Estimate is $2.18.
Further, the company’s 2013 same-center revenue growth forecast was lowered to nil to 1% from the earlier expected nil to 2%. Net cash flow provided by operating activities, less distribution to non-controlling interests, is expected in a range of $140−$150 million in 2013 (unchanged).
Additionally, AmSurg provided its EPS guidance for the second quarter of 2013. The company expects EPS in the range of 55−57 cents. The current Zacks Consensus Estimate of 55 cents remains at the low end of the range.
Even amid uncertain economic conditions and high unemployment, we are encouraged by AmSurg’s first-quarter revenue growth of 14%. However, we are concerned with the decline in same-center sales after successive quarters of improvements. The company reported expansion in top line on the back of growth in total procedures, mainly with the opening of new centers.
We are also encouraged with the company’s newly formed joint venture with a hospital system and expect AmSurg to go ahead with its acquisition pipeline, supported by a strong cash position. Government agencies have undertaken initiatives to curtail healthcare expenditure, thereby resulting in a shift toward ambulatory surgery centers from admission to traditional hospitals.
However, the company is encountering several challenges such as reimbursement issues, higher expenses and economic uncertainty. Collectively, these result in deferring elective procedures with a decline in doctor visits by patients, and thereby decreasing surgical volume. This also mounts pressure on margins. Currently, AmSurg retains a Zacks Rank #4 (Sell).
Other Stocks to Consider
Amsurg’s performance has not been so encouraging. However, other stocks in the medical device sector, carrying a Zacks Rank #1(Strong Buy), like Cyberonics Inc. (CYBX), Nuvasive Inc. (NUVA) and Health Net Inc. (HNT) appear impressive.
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