SRDX SurModics Inc

Home healthcare provider Amedisys Inc. (AMED) recorded adjusted loss from continuing operations per share of 5 cents in the fourth quarter of 2013, a massive downfall from the adjusted income from continuing operations of 25 cents earned in the year-ago quarter. Reported loss was also wider than the Zacks Consensus Estimate of loss of 3 cents a share.

Per management, three factors led to the earnings downfall: higher cost per visit in home health, higher-than-expected employee healthcare cost and an accrual of $450,000 related to one of the company’s care centers. For the full year, adjusted net income from continuing operations came in at 27 cents per share, deteriorating significantly from the year-ago figure of $1.15.

Quarter in Detail

Amedisys primarily derives revenues from its home health and hospice agencies. Fourth-quarter net service revenue grossed $303.5 million, down 13.7% year over year. However, the top line fared better than the Zacks Consensus Estimate of $295 million. Total revenue in 2013 came in at $1,249.3 million, down 13.3%.

Within the company’s Home Health division, net service revenue was $238.4 million (down 14.7% year over year) with Medicare revenues of $193.1 million and non-Medicare revenues of $45.3 million.

Within the hospice division, net service revenue was $65.1 million (down 9.5% year over year) including Medicare revenues of $67.8 million and non-Medicare revenues of $4.1 million in the quarter.

The company reported a 252 basis points (bps) contraction in gross margin to 40.9% in the quarter. Expenses on salaries and benefits declined 9.3% to $74.6 million, while other expenses decreased 11.6% to $41.5 million. Amedisys posted adjusted operating margin contraction of 401 bps to 4.9% in the quarter.

Amedisys exited the fiscal with cash and cash equivalents of $17.3 million compared with $14.5 million at the end of 2012. The company’s long-term obligations (including current portion) were $46.9 million as against $102.7 million at the end of 2012. Net cash provided by operating activities in the quarter was $8.4 million, down 48.0% year over year.

Our Take

Amedisys posted yet another weak quarter with sustained volume pressure. Although the company’s revenues surpassed the Zacks Consensus Estimate, the bottom line missed the same. The company also failed to meet its guidance for another quarter. We believe that poor segment performance, sluggish growth trend and the adverse impact from sequestration led to the dismal fourth-quarter results. Moreover, the fact that no guidance was provided for the upcoming fiscal, failed to inspire confidence.

We believe that the highly uncertain home nursing reimbursement environment, coupled with significant reduction in Medicare reimbursement in the recent past has affected Amedisys’ performance over the past few quarters. We expect the healthcare reimbursement pressure to persist even in 2014, thereby weakening the company’s performance further.

Currently, the stock carries a Zacks Rank #3 (Hold). On the other hand, medical sector stocks such as Covidien plc (COV), Stryker Corporation (SYK) and SurModics, Inc. (SRDX) are expected to do well. All the three stocks hold a Zacks Rank #2 (Buy).

 
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