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Tenet Misses, Improves Y/Y

Zacks Equity Research

Tenet Healthcare Corp. (THC) reported third-quarter 2012 earnings from continuing operations of 28 cents per share, falling short of the Zacks Consensus Estimate by 6 cents, but soaring fourfold from 7 cents earned in the year-ago quarter.

Growth in revenues, largely driven by higher outpatient visits and surgeries along with cost containment initiatives fueled the year-over-year improvement.

Net income, including earnings from discontinued operations of 10 million or 9 cents a share, was $40 million or 37 cents per share in the reported quarter, improving substantially from $6 million or 5 cents earned in the year-ago quarter.

Operational Update

Net operating revenues stood at $2.2 billion, up 5.8% from $2.1 billion in the prior-year quarter. However, reported revenues lagged the Zacks Consensus Estimate of $2.4 billion.

During the reported quarter, Tenet’s net patient revenues per adjusted patient day increased 3.7% on a year-over-year basis to $11,579, primarily due to improved terms of commercial managed care contracts.

Admissions skidded 0.5% during the quarter, while adjusted admissions crawled up 1.4% year over year. Surgeries increased 6.3% while emergency department visits improved 4.9%.

Bad debt expense, as a percent of revenues, increased 20 basis points year over year to 8.5%, stemming from upsurge in uninsured and charity outpatient visits.

Tenet posted adjusted earnings before interest, taxes, depreciation and amortization (:EBITDA) of $269 million in the reported quarter, up 40.1% from $192 million in the prior-year quarter. Adjusted EBITDA margin was 12.1%, expanding 300 basis points year over year.  

Financial Position

Tenet exited the quarter with cash and cash equivalents of $83 million, inching up from $82 million as of June 30, 2012. As of September 30, 2012, total assets of Tenet were $8.47 billion and shareholders’ equity was $1.2 billion.

Net cash flow from operating activities in the first nine months of 2012 was $373 million, improving from $324 million in the year-ago period.

Tenet’s capital expenditures increased to $108 million in the quarter from $100 million in the prior-year quarter.


Tenet estimates adjusted EBITDA to be between $313 million to $353 million in the fourth quarter of 2012. Adjusted EBITDA guidance for 2012 was lowered to $1.18–$1.22 from $1.250–$1.375 billion guided earlier.

For 2013, it expects adjusted EBITDA to be in the range of $1.325 billion to $1.425 billion.

Operating income is projected to be about $196–225 million down from $235–317 million. Operating income for 2013 is projected in the range of $263–335 million.

Additionally, shares outstanding as of December 31, 2012 are expected to be approximately 107 million, while it is expected at 99 million as of December 31, 2013. Consequently, adjusted earnings per share for 2012 are expected to be about $1.83-$2.12 and $2.66-$3.38 for 2013.

Further, net income in 2012 is anticipated to be around $134–175 million, down from $165–270 million. For 2013, it is expected to be $258–335 million.

Peer Take

Universal Health Services Inc. (UHS), a rival of Tenet, declared its third-quarter earnings of 92 cents per share, falling short of the Zacks Consensus Estimate of 99 cents but striding ahead of the year-ago earnings of 86 cents.

Another competitor, HCA Holdings Inc. (HCA) reported adjusted income of 77 cents per share in the third quarter of 2012, lagging the Zacks Consensus estimate by a penny but bettering the year-ago period’s earnings of 60 cents.

Zacks Rank

Tenet carries a Zacks #3 Rank, implying a short-term Hold rating that blends well with our long-term Neutral recommendation on the shares.

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