Home healthcare provider Amedisys (AMED) reported earnings per share (EPS) of 33 cents in the third quarter of fiscal 2012, comfortably beating the Zacks Consensus Estimate of 27 cents. However, the results were below the year-ago adjusted EPS of 42 cents. The adjusted EPS in the year-ago quarter has been arrived at after taking into account impairment charges of $574.1 million ($434.6 million after tax) or $15.10 per share, based on the decline in market capitalization and the dismal performance in last year.
Amedisys primarily derives revenue from its home health and hospice agencies. Net service revenue stood at $375.6 million in the reported quarter, up 1.4% year over year. However, revenues missed the Zacks Consensus Estimate of $380 million.
Episodic-based sales in home health dropped 5.5% to $271.3 million, but was partially offset by a 16.8% increase in Medicare revenue growth within the company’s hospice division to $70.6 million.
The company reported a huge 243 basis points (bps) contraction in gross margin to 42.9% in the third quarter of 2012. Expenses on salaries and benefits, during the quarter, declined 4.1% to $81.2 million with a 3.3% increase in other expenses to $48.3 million. Non-cash compensation expenses declined 59.2% year over year to $1.3 million. Adjusted operating margin (excluding the effects of depreciation and amortization, goodwill and other intangibles impairment charge and provision for doubtful accounts) contracted 90.5 bps year over year to 8.1%.
Amedisys exited the reported quarter with cash and cash equivalents of $39.1 million, down from $48.0 million at the end of fiscal 2011.
Amedisys narrowed its revenue guidance for fiscal 2012 to $1.485–$1.505 billion (earlier range being $1.490–$1.525 billion). The company also tightened its EPS guidance in the range of $1.00– $1.06 (earlier guidance being 95 cents–$1.10). The current Zacks Consensus Estimates project EPS of $1.03 and revenues of $1.498 billion, which are within the guidance range.
The highly uncertain home nursing reimbursement environment, coupled with significant reduction in Medicare reimbursement in 2011 and 2012 has affected Amedisys’ performance over the past few quarters. We expect the healthcare reimbursement pressure to persist even in fiscal 2013, thereby weakening the company’s performance.
Furthermore, we believe that the implementation of the face-to-face rule is restricting the company’s margins as the training and implementation involved in the program have increased costs.
Moreover, with the presence of strong players like Gentiva Health Services Inc. (GTIV) among others, competition remains stiff. Presently, Amedisys retains a short-term Zacks #3 Rank (Hold).
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