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Encompass Health (EHC) Misses on Q3 Earnings, Cuts '21 EPS View

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Encompass Health Corporation EHC delivered third-quarter 2021 adjusted earnings of $1.03 per share, which missed the Zacks Consensus Estimate by 3.7%. Nevertheless, the bottom line climbed 32.1% year over year.

The company’s results gained on the back of improved revenues driven by strong performance by the Inpatient Rehabilitation segment, partly offset by COVID-linked headwinds troubling the Home Health and Hospice segment, and escalating costs.

Behind the Headlines

The company’s net operating revenues advanced 9.4% year over year to $1.3 billion in the third quarter, courtesy of the Inpatient Rehabilitation segment, which in turn, was driven by solid discharge growth and favorable pricing. However, the top line was partially affected by COVID-related headwinds that strained volume growth and increased costs in the home health and hospice business. The top line lagged the consensus mark by 2.4%.

Adjusted EBITDA of $245.6 million rose 6.7% year over year in the quarter under review.

Total operating expenses of $1.1 billion increased 8.4% year over year due to a rise in salaries and benefits, other operating expenses, general and administrative expenses, and depreciation and amortization.

General and administrative expenses, excluding stock-based compensation, increased 5.2% year over year to $32.4 million in the third quarter.

Encompass Health Corporation Price, Consensus and EPS Surprise

Encompass Health Corporation Price, Consensus and EPS Surprise
Encompass Health Corporation Price, Consensus and EPS Surprise

Encompass Health Corporation price-consensus-eps-surprise-chart | Encompass Health Corporation Quote

Segmental Results

Inpatient Rehabilitation

Revenues at the segment amounted to $1 billion, which improved 12.4% year over year. The growth came on the back of an 11.4% rise in revenues from the inpatient business, riding on favorable pricing and volume growth. The segment’s revenue growth was also driven by the 67.9% surge in outpatient and other business revenues.

Adjusted EBITDA grew 10.7% year over year to $231.6 million in the third quarter, attributable to improved revenues.

Home Health and Hospice

Encompass Health is looking for strategic alternatives aimed at partial or complete separation of the home health and hospice business in relation to which management is eyeing a transaction in the first half of 2022. Detailed information about the timing and type of separation transaction is likely to be disclosed with the company’s fourth-quarter 2021 earnings release.

Coming back to the third quarter, the segment’s revenues of $273.9 million dipped 0.2% year over year due to a 1% drop in revenues at the Home Health sub-unit. The sub-unit was affected by reduced admissions stemming from COVID-19 headwinds. Meanwhile, Hospice sub-segment revenues increased 3.1% year over year to $52.8 million.

Adjusted EBITDA plunged 10.4% year over year to $46.4 million in the third quarter due to pandemic-linked headwinds resulting in reduced volumes and higher costs.

Financial Update (as of Sep 30, 2021)

Encompass Health exited the third quarter with cash and cash equivalents of $94.8 million, which more than doubled from the 2020-end figure.

Total assets of $6.7 billion increased 4.3% from the level at 2020-end.

The company’s long-term debt, net of current portion totaled $3.1 billion, which declined 3.3% from the figure as of Dec 31, 2020.

Adjusted free cash flow of $124.1 million remained flat year over year.

Slashed 2021 Outlook

Concurrent with third-quarter results, the company trimmed its full-year outlook for certain metrics taking the prevailing volatile environment into consideration.

Since the company has not yet arrived at a final decision regarding the home health and hospice business, it has considered the existing business structure while laying down expectations.

This year, management anticipates net operating revenues within $5.08 billion to $5.13 billion, down from the previous outlook of $5.10-$5.25 billion.

Adjusted EBITDA is projected to lie in the range of $1.025-$1.045 billion, lower than the prior guidance of $1.05-$1.07 billion.

Adjusted earnings per share from continuing operations are forecast between $4.23 and $4.38 in 2021, down from the prior outlook of $4.32-$4.47.

Zacks Rank

Encompass Health currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Medical Sector Releases

Of the medical sector players that reported third-quarter results so far, the bottom lines of UnitedHealth Group Incorporated UNH, HCA Healthcare, Inc. HCA and Anthem, Inc. ANTM have beat the Zacks Consensus Estimate.

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HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report

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