DaVita Beats Estimates - Analyst Blog
August 04 2011 - 8:15AM
Zacks
DaVita Inc. (DVA) reported second-quarter net
operating income of $114.4 million, or $1.17 per share, which
exceeded the Zacks Consensus Estimate by 3 cents. The earnings were
also higher than $110.4 million or $1.06 per share earned in the
comparable quarter of 2010.
Earnings for the year-ago quarter exclude after-tax debt
redemption charges of $2.5 million or 2 cents per share, while the
reported quarter’s earnings exclude after-tax non-cash goodwill
impairment charges of $14.4 million or 14 cents per share.
Net income, including the non-recurring items, was $100 million
or $1.03 per share, showing a decline from $107.9 million or $1.04
per share in the year-ago quarter.
The increased income was attributable to better-than-expected
revenues, reduced operating expenses and strong cash flows of the
company.
Net operating revenues for the reported quarter climbed to $1.71
billion, beating the Zacks Consensus Estimate of $1.64 billion and
surpassing the year-ago revenue of $1.59 billion. Total operating
expenses and charges declined to $1.46 billion from $1.34 billion
in the second quarter of 2010.
Segment wise, revenues from the Dialysis and related
Lab Services segment for the quarter came in at $1.59
billion as against $1.50 billion in the prior-year quarter.
Operating income for the segment increased to $283 million in the
reported quarter from $254 million in the year-ago quarter.
Ancillary services and strategic
initiatives generated revenues of $123 million,
increasing substantially from $93 million in the year-ago quarter.
The segment suffered an operating loss of $25 million in the
reported quarter as against a loss of $2 million in the year-ago
quarter.
DaVita provided administrative services across 1,669 outpatient
dialysis centers serving approximately 131,000 patients as of June
30, 2011. DaVita acquired and opened a total of 27 centers during
the reported quarter.
Total treatments for the reported quarter came in at
approximately 4.8 million. This represents a per day increase of
7.1% over the year-ago quarter. The growth of non-acquired
treatment in the quarter stood at 4.6%.
The company's effective tax rate was 35.7% in the reported
quarter. The third party owners’ income attributable to non-tax
paying entities impacted the effective tax rate. The effective tax
rate attributable to DaVita in the reported quarter was 40.0%.
Financial Update
In the reported quarter operating cash flow was $204 million and
free cash flow was $125 million, both showing sharp declines from
$296 million and $250 million, respectively, in the prior-year
quarter.
Total assets at the end of June were $8.19 billion, up from $
8.11 billion on December 31, 2010. The total long-term debt on June
30, 2011 declined marginally to $4.21 billion from $4.23 billion as
of December 31, 2010.
Stock Update
DaVita repurchased 3.7 million shares for $316.1 million at an
average price of $85.20 during the first half of the year. In
addition, DaVita also repurchased 84,600 shares of common stock
from July 1, 2011 through July 31, 2011 for $7.3 million at an
average price of $85.83.
As a result of these transactions, the remaining board
authorization for share repurchases as of July 31, 2011 is
approximately $358 million.
Acquisition Update
DaVita is expected to complete the acquisition of its competitor
DSI Renal Inc. ("DSI") during the third quarter of 2011. The deal
was announced on February 4, 2011, for approximately $690 million,
subject to customary closing conditions.
DaVita will require the Hart-Scott-Rodino antitrust clearance to
complete the deal. In addition, DaVita believes that it will have
to divest some of its centers as a condition of the transaction.
Credit Suisse Group (CS) is acting as its
financial advisor.
Outlook for 2011
DaVita expects its operating income for the year to be in the
range of $1,080 million to $1,120 million and its operating cash
flows to be in the range of $900 million to $980 million.
For fiscal year 2012, DaVita expects operating income in the
range of $1,200 million to $1,300 million.
Our Take
DaVita is showing sharp earnings growth in both its business
segments coupled with strong expected free cash flow, declining
costs and the potential for meaningful mergers and acquisitions,
which convinces us that the company will continue its growth
story.
Moreover, we believe the acquisition of DSI will provide access
to new areas of work for DaVita in the Midwestern, Southern and
some Western states.
DaVita carries a Zacks #2 Rank, implying a short-term Buy
rating.
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