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Health Mgmt. Beats Estimates

Zacks Equity Research

Health Management Associates (HMA), a leading operator of general acute care hospitals, reported fourth quarter and fiscal 2011 earnings per share of 26 cents and 86 cents, respectively, beating the corresponding Zacks Consensus Estimate of 20 cents and 80 cents and surpassing the year-ago earnings per share of 16 cents and 65 cents, respectively.

Net income from continuing operations dropped 22.1% year over year to $32.1 million (or 13 cents per share). Consolidated net income rose 9.5% to $30.8 million.


Revenues increased 17.6% year over year to $1,584 million, narrowly beating the Zacks Consensus Estimate of $1,571 million. For fiscal 2011, revenues rose 14% to $5,804.5 million, higher than the Zacks Consensus Estimate of $5,770 million. The top line was driven by higher hospital admissions (on a continuing operations basis). Net sales from same hospital (continuing operations), operated for at least a year, rose 5.5% to $1,420.4 million.

Operational Statistics

From a continuing operations perspective, occupancy dipped to 41% from 42.7% in the year-ago quarter. Admissions increased 6.8% while adjusted admissions were up 11.6% in the quarter. Average length of stay stagnated at about 4.1 days. Surgeries were up 18%, patient days rose 6.4%, while emergency room visits moved up 12.6%.

On a same hospital basis, occupancy dropped to 40.7% in the quarter from 42.7% a year ago. Same hospital admissions and adjusted admissions fell 3.7% and 1.1%, respectively.


Same hospital adjusted EBITDA margin moved up to 19.1% compared with 16.1% in the year-ago quarter. Bad debt expense, as a percentage of revenues, was up marginally to 12.3% from 12.2% in the year-ago period.

The total of uninsured discounts, indigent/charity write-offs and bad debt expense as a percentage of the sum of net sales, uninsured discounts and indigent/charity write-offs rose slightly to 25.4% in the reported quarter from 25.2% a year ago. This metric indicates the aggregate extent of patient care for which the company is not reimbursed.  

Balance Sheet and Cash Flow

Health Management finished the quarter with cash (and cash equivalents) and available-for-sale securities of $204.1 million, up 28.3% year over year, with long-term debt of about $3,489 million, up 17% year over year. The company produced operating cash flow (from continuing operations) of $114.8 million during the quarter (compared with $437.1 million in the year-ago quarter).


A subsidiary of the company inked a definitive agreement with Integris Health for a joint venture relationship with 5 hospitals in Oklahoma. These facilities have a total of 226 beds and produced revenues of about $95 million over the preceding year. As per the agreement, Health Management is slated to hold an 80% stake in each of the 5 hospitals. 


The company expects earnings between 80 cents and 90 cents per share for fiscal 2012. The forecast does not include $80 million of impact from an interest rate swap and $90 million to $120 million of Medicare and Medicaid HCIT incentive payments. The Zacks Consensus Estimate for earnings per share for 2012 is 83 cents.  

Health Management is engaged in the ownership and operation of general acute care hospitals in non-urban communities across the U.S. The company is an active acquirer of underperforming hospitals with a turnaround potential in high-growth markets. Health Management’s competitors, in niche markets, include Community Health Systems (CYH) and LifepointHospitals (LPNT).

Health Management benefits from a gradual growth in admissions largely due to improvements in Emergency Room, sustained physician recruitment and service development. Moreover, it is well placed to expand margins from continuing operations and drive above-industry average earnings growth. While the debt burden remains sizeable, we are somewhat comforted that bad debt is no longer an area of looming concern. Currently we are Neutral on Health Management which is backed by a Zacks #3 Rank (“Hold”).

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