Healthcare Services Posts Loss in Q3; Updates Guidance
Healthcare Services Group, Inc. (HCSG) reported a net loss of 31 cents per share in the third quarter of fiscal 2014, comparing unfavorably with net income of 20 cents in the year-ago quarter and the Zacks Consensus Estimate for a profit of 22 cents.
Healthcare Services Group Inc - Earnings Surprise | FindTheBest
The weak performance was largely owing to the adjustment made in the third quarter of 2014 to reflect estimated current and future insurance claims, which will expectedly close over the next 15 to 17 years.
Behind the Headlines
Healthcare Services revenues for the quarter improved nearly 7.2% year over year to $320.1 million. However, it fell short of the Zacks Consensus Estimate of $330 million.
Cost of services provided increased 23.3% while selling, general and administrative expenses rose 74.4%, both on a year-over-year basis.
Financial Update
Healthcare Services exited the quarter with cash and cash equivalents of $52.9 million, down 17.6% from fiscal 2013-end.
Total assets as of Sep 30 were $442.2 million, up 3.9% from fiscal 2013-end.
Stockholders' equity was $268.9 million on Sep 30, down 5.7% from fiscal 2013-end.
Dividend Update
The board of directors of Healthcare Services declared a quarterly cash dividend of 17.5 cents per share, payable on Dec 26, 2014 to shareholders of record on Nov 21, 2014. While this marks the 45th payout hike without a break, it is also the 46th consecutive quarterly cash dividend by the company.
Guidance
Healthcare Services declared the transfer of its workers compensation and certain employee health and welfare insurance programs to its subsidiary, HCSG Insurance Corp (Captive) in fiscal 2015. Apart from this, the company is expected to start the reorganization of its corporate structure during the fourth quarter that will result in formation of ten separate legal entities, each with divisional and regional operating units.
The business service provider expects the insurance program improvements to be accretive to earnings in fiscal 2015 and the coming years. Notably, it is already reaping administrative and operational benefits provided by Captive.
On completion of the reorganization, the company expects the tax benefit to favorably impact cash and marketable securities by $20 million upon full funding of Captive.
In the reported quarter, Healthcare Services also recorded an adjustment to reflect the estimated current and future insurance claims that are expected to be close over the next 15 to 17 years, along with charges related to the corporate reorganization, self-funded health insurance program transition and other related expenses.
The company also declared the new service agreements to begin in fourth-quarter 2014 will have an expected annualized revenue of over $120 million.
Currently, Healthcare Services has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks that are worth reckoning in the same industry include PFSweb Inc. (PFSW), comScore, Inc. (SCOR) and ExamWorks Group, Inc. (EXAM). While PFSweb sports a Zacks Rank #1 (Strong Buy), comScore and ExamWorks Group hold a Zacks Rank #2 (Buy).
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