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Tenet Healthcare's (THC) Q3 Loss Narrower Than Expected

Zacks Equity Research

Tenet Healthcare Corp. THC reported third-quarter 2017 adjusted net loss from continuing operations attributable to its shareholders of 17 cents per share that was narrower than the Zacks Consensus Estimate of a loss of 38 cents. However, the figure compares unfavorably with adjusted earnings of 20 cents in the year-ago quarter.

This underperformance primarily stemmed from $55 million decline in California Provider Fee revenues, an estimated $30 million of lower revenues and higher expenses associated with hurricanes Harvey and Irma. Expenses of approximately $20 million related to the sale of the company’s hospitals and related assets in Houston, effective Aug 1, 2017, also contributed to the downside.

Operational Update

Third-quarter net operating revenues came in at $4.6 billion, down 5.4% from the prior-year quarter. Revenues also missed the Zacks Consensus Estimate by 3%.

Tenet Healthcare’s same-hospital exchange admissions were 4,856 in the third quarter, down 6.8% year over year.

Same-hospital exchange outpatient visits were 49,089 in the quarter, up 4.3% from the year-ago period.

Tenet Healthcare’s provision for doubtful accounts was $355 million, representing a ratio of 7.2% of revenues before bad debt compared with $367 million in the prior-year quarter, or 7% of revenues before bad debt. The increase in the bad debt ratio was primarily attributable to a $33 million increase in same-hospital self-pay revenues.

Total operating expenses were $4.6 billion, up 0.7% year over year due to a substantial decline in litigation and investigation costs.

Quarterly Segment Details:

Hospital & Other

Net operating revenues in the Hospital Operations and Other segment decreased 4.6% from the last-year quarter to $3.9 billion. This was primarily due to a decline in adjusted admissions including the impact of Hurricane Irma, no revenue recoded under the California Provider Fee Program in the third quarter and the sale of hospitals and related assets in Houston.

On a same-hospital basis, patient revenues were $3.8 billion, down 2.3% from third-quarter of 2016.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $269 million, down 22.3% year over year.

Ambulatory Segment:

The Ambulatory segment generated net operating revenues of $468 million, up 4.5% year over year.

In addition, the segment reported adjusted EBITDA of $159 million, up 1.3% year over year.

Conifer Segment:

Conifer’s revenues increased 0.8% from the prior-year quarter to $401 million on the back of 5.4% higher revenues generated from third-party customers.

The segment reported $79 million of adjusted EBITDA in the reported quarter, flat year over year.

Tenet Healthcare Corporation Price, Consensus and EPS Surprise

Tenet Healthcare Corporation Price, Consensus and EPS Surprise | Tenet Healthcare Corporation Quote

Financial Position

As of Sep 30, 2017, Tenet Healthcare had cash and cash equivalents of $429 million, down 40% from year-end 2016.

The company exited the third quarter with $14.7 billion of long-term debt, down 2.1% from year-end 2016.

As of Sep 30, 2017, shareholders’ equity was $24 million, considerably down from $417 million at Dec 31, 2016.

Net cash provided by operating activities for the nine months ended Sep 30, 2017 was $709 million, representing a 16.7% decrease from the first nine months of 2016

2017 Outlook Lowered

Tenet Healthcare projects revenues in the range of $18.9 billion to $19.1 billion, down from the previously guided range of $19.1 billion to $19.4 billion.

Adjusted EBITDA is expected between $2.375 billion and $2.425 billion, down from the previous projection of $2.450-$2.550 billion.

Adjusted earnings per diluted share is projected in the range of 59 cents to 74 cents, down from the earlier projection of 69-99 cents.

Net loss from continuing operations is likely to be between $372 million and $367 million, as against the previous guidance of net income of $115-$90 million.

Tenet Healthcare expects adjusted free cash flow of $450-$650 million, down from the prior projection of $525-$725 million. It expects net cash provided by operating activities to be between $1.0 billion to $1.3 billion compared with the previously projected range of $1.2 billion to $1.4 billion.

Fourth-Quarter Outlook

For the fourth quarter, the company expects revenues in the range of $4.8-$5 billion.

It expects adjusted EBITDA to be between $771 million and $821 million.

Net income from continuing operations is expected between $102 million and $177 million.

Adjusted earnings per share from continuing operations are expected in the range of $1.20 to $1.35.

Zacks Rank and Performance of Other Insurers

Tenet Healthcare presently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among the other firms in the medical sector that have reported their third-quarter earnings so far, the bottom lines of Centene Corp. CNC, Aetna Inc AET and Anthem, Inc ANTM surpassed their respective Zacks Consensus Estimate.

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