Tenet Healthcare Corp. earlier this week reported second quarter net income of $42 million or 10 cents per diluted share for the quarter ending June 30, compared to $40 million or 8 cents per diluted share for the second quarter of 2011.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $288 million for the second quarter of 2012, is an increase of $13 million, or 4.7 percent, compared to the second quarter of 2011 with an adjusted EBITDA of $275 million.
EBITDA earnings were positively impacted by $47 million from the California Provider Fee 30-month program, which had not been included in earlier company guidance of $225 million to $250 million in EBITDA for the second quarter.
“If you exclude the entire $47 million from the provider fee on the basis that it was not in our guidance, we came in above the midpoint of our range,” said Trevor Fetter, Tenet’s president and CEO in a conference call. “When we established our EBITDA guidance for the entire year, we anticipated the entire provider fee would be recognized in the fourth quarter. So while it is a positive surprise for the second quarter, the amount of the fee is roughly consistent with our expectations for the full year.”
Investors were bullish on the latest earnings report and shares of Tenet jumped 9 percent on the news, closing at $5.08 per share after opening the day at $4.66 per share.
The country’s third largest hospital operator, Tenet showed growth in a number of key business segments. Adjusted admissions increased by 1.5 percent, though total admissions declined by 0.4 percent. Surgery growth increased by 4.9 percent, and emergency department visits increased 5.0 percent. These growth rates compared favorably with those of its peers, the company noted.
"Our fundamental business trends in terms of volume growth, pricing and cost controls remained strong," Fetter noted in the conference call.
Tenet also noted that a number service lines it had targeted for growth, such as major trauma and neuro-, thoracic-, oncology and vascular surgeries, contributed to volume growth in the quarter.
Analysts were bullish on the latest results from Tenet, including a Zacks report that reaffirmed its “outperform” rating on the stock.
“Tenet’s second-quarter earnings surpassed the Zacks Consensus Estimate and the year-ago results based on growth in revenues arising from higher adjusted admissions, outpatient visits and surgeries, that were partly offset by the rise in bad debt…Overall, we believe that growth through the acquisitions, ratings upgrade and volumes can help boost the future earnings outlook,” wrote Zacks’ analysts.
One area of concern was the company’s bad debt expense which increased to $190 million compared to $168 million in the second quarter last year. Bad debt expense as a percent of revenues was 7.7 percent, an increase of 40 basis points compared to 7.3 percent in the second quarter of 2011.
Looking forward, Tenet management pointed to its recent four-year contract with Humana for members of Humana's Medicare, HumanaOne, health maintenance organization, point of service and preferred provider organization plans and the recent 10-year contract its Conifer Health Solutions signed in May with Catholic Health Initiatives to provide revenue cycle services to 56 CHI hospitals as business that will have a positive effect in the second half of the year.
[See also: Tenet provides 2012 earnings outlook]
[See also: Tenet rejects $3.3B buyout offer from Community Health Systems]