THC Tenet Healthcare Corporation New

Tenet Healthcare Corp. (THC) reported fourth-quarter 2011 income from continuing operations of 10 cents per share, lagging the Zacks Consensus Estimate of 13 cents but surpassing the prior-year quarter earnings of 8 cents per share. Operating income for the quarter declined to $42 million from $43 million in the year-ago quarter.

The improvement in earnings on a yearly basis was attributed to growth in revenues arising from higher admissions, outpatient visits and surgeries. However, this was partly offset by the rise in operating expenses.

Operating income for both the reported quarter and the year-ago quarter excludes loss from early extinguishment of debt, litigation and investigation costs and valuation tax adjustments. Including the non-recurring items, Tenet’s net loss was $76.0 million or 17 cents per share in the reported quarter, deteriorating significantly from the net income of $74.0 million or 14 cents per share in the prior-year quarter.

Net operating revenues stood at $2.23 billion, up 5.4% from $2.11 billion in the prior-year quarter. However, reported revenues lagged the Zacks Consensus Estimate of $2.40 billion.

During the reported quarter, Tenet’s net patient revenues per adjusted admission increased 2.3% on a year-over-year basis to $11,633, primarily due to improved terms of commercial managed care contracts, partially offset by an adverse shift in payer mix.

Admissions inched up 0.3% during the quarter, while paying admissions remained flat. Additionally, outpatient visits budged up 0.3% and adjusted admissions crept up 1.3% year over year.

Tenet incurred $2.08 billion in operating expenses during the reported quarter, compared with $1.95 billion in the prior-year quarter. Bad debt expense declined 2.6% to $185 million from $190 million in the fourth quarter of 2010.

Tenet posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $294 million in the reported quarter, up 4.6% from $281 million in the prior-year quarter. Adjusted EBITDA margin was 13.2% compared with 13.3% in the year-ago quarter.

Full-Year 2011 Highlights

For full-year 2011, Tenet reported operating income of 39 cents per share, missing the Zacks Consensus Estimate of 41 cents but ahead of the year-ago level of 30 cents. Operating income increased to $206 million from $177 million in 2010.

Tenet’s net operating revenue amounted to $8.85 billion in 2011, lagging the Zacks Consensus Estimate of $9.6 billion but 4.6% higher than $8.47 billion reported in 2010. Moreover, adjusted EBITDA grew 9.0% year over year to $1.15 billion in 2011.

Additionally, total expenses increased to $8.20 billion from $7.83 billion in 2010, while net income was $58.0 million compared with $1.12 billion in 2010.

Financial Position

Tenet exited 2011 with cash and cash equivalents of $113 million, down from $185 million as of September 30, 2011. The decrease in cash was the result of $178 million spent on buying back 40.3 million shares and $28 million for acquiring five outpatient centers and some assets related to acquired physician practices. Tenet’s capital expenditures were $177 million in the quarter, compared with $196 million in the prior-year quarter.

During 2011, Tenet repurchased 75.8 million shares at an average price of $4.94 totaling $374 million under its $400 million share repurchase program announced in May last year. The company exhausted the $400 million repurchase authorization in January 2012 by buying back 81.1 million shares from May 2011 to January 2012 for $4.94 per share.

Net cash generated from operating activities in 2011 was $497 million, against $472 million in 2010. As of December 31, 2011, total assets of Tenet were $8.46 billion and shareholders’ equity was $1.42 billion.

Outlook

Tenet raised its guidance for adjusted EBITDA to $1.225–1.350 billion for 2012 and affirmed its 2013 adjusted EBITDA guidance range of $1.75–2.25 billion.

Peer Take

Universal Health Services Inc. (UHS), a rival of Tenet, declared its fourth-quarter earnings of 91 cents per share, at par with the Zacks Consensus Estimate but soaring past the year-ago earnings of 58 cents.

Another competitor, HCA Holdings Inc. (HCA) reported net income of 94 cents per share in the fourth quarter of 2011, beating the Zacks Consensus estimate of 76 cents and year-ago earnings of 65 cents.

Tenet carries a Zacks #3 Rank, implying a short-term Hold rating, with no clear directional pressure in the near term. Considering the fundamentals, we maintain our long-term ‘Neutral’ recommendation on the shares.

 
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