Two hospital companies chalked up big earnings gains last week, but Community Health Systems didn't meet stock analysts' projections, leading to a one-day slide of 14% in its stock price.
The Nashville, Tenn.-based hospital chain was just two cents short of analysts' expectations for third-quarter earnings per share. Analysts expected 40 cents per share in fully taxed earnings, while CHS reported 38 cents for the quarter ended Sept. 30.
That, coupled with the sale of a 1 million share block, led to a $5.50 drop in CHS' stock price Oct. 24 to $32.75.
The next day, CHS stock, which is traded on the New York Stock Exchange, recovered 50 cents to $33.25.
Although CHS executives put a positive spin on its earnings news, analysts expressed concern about the report, which marked the first time company executives had missed analysts' projections.
Third-quarter earnings were down 4 cents per share because of a loss at three of the chain's Florida hospitals, officials said. However, in the same announcement, the company said it was divesting those hospitals in a swap with Columbia/HCA Healthcare Corp. (See related story, next page).
Even so, the financial effects seemed uncertain. "The company did not give us any guidance on the cost (of the swap) or what the net effect would be on earnings in 1996," said Sheryl Skolnick, healthcare analyst with Robertson Stephens & Co., a San Francisco-based investment banking firm.
CHS did disclose that the swap would result in an after-tax loss of about $16 million, which meant a charge on the upcoming quarter's earnings. "The fourth quarter is going to be messy," Skolnick said.
Even so, the hefty slide in the stock price was an overreaction, she said. After the earnings announcement, the stock dipped a few points, but the big drop came after the 1 million share block was put up for sale. That's a large sell-off, representing 5% of CHS' outstanding shares. CHS officials said they didn't know who the shareholder was.
For the third quarter, the company reported a 110% increase in net income to $8.4 million, or 42 cents per share, compared with $4 million, or 26 cents per share, in the year-ago period. The big gain in profits reflects the acquisition of a 17-hospital chain last October. Revenues grew 22% to $138.2 million.
For the nine months, profits grew 105% to $29.8 million, or $1.50 per share, compared with $14.6 million, or 94 cents per share, in the year-ago period. Revenues were up 21% to $417.6 million.
Two other hospital chains reported strong earnings.
Health Management Associates, a Naples, Fla.-based chain, reported a 31% increase in net income to $14.8 million, or 31 cents per share, for the fourth quarter ended Sept. 30, compared with $11.3 million, or 24 cents per share, in the year-ago period. Revenues were up 23% to $133.9 million.
For the year, the company reported a 36% increase in profits to $63.3 million, or $1.32 per share, compared with $46.5 million, or 98 cents per share, in the year-ago period. Revenues increased 21% to $531.1 million.
William Schoen, HMA's chairman, president and chief executive officer, told analysts last week that the company is looking at 19 possible hospital deals. All the proposed transactions involve markets "in which we would become the predominant or sole provider," Schoen said.
HMA often competes with CHS for acquisitions. Both chains focus on non-urban hospital markets. He said HMA also continues to await an IRS ruling on the bond tender offer for Cape Coral (Fla.) Hospital. During the last fiscal year, HMA added three hospitals.
In addition, Quorum Health Group reported a strong gain in profits. For the first quarter ended Sept. 30, the Nashville-based company reported a 27% increase in profits to $14.6 million, or 29 cents per share, from $11.5 million, or 23 cents per share, in the year-ago period. Revenues grew 31% to $253.7 million.
Quorum also said it will divest Concho Valley Regional Hospital in San Angelo, Texas. The company is transferring the lease and selling certain assets to Shannon Health System, also in San Angelo. Terms were not disclosed.
Community Health Systems
3 months ended 9/30 FY1995 FY1994
Revenues (thousands) $138,203 $113,647
Net income (thousands) $8,440 $4,009
Earnings per share $0.42 $0.26
9 months ended 9/30
Revenues (thousands) $417,624 $344,990
Net income (thousands) $29,798 $14,551
Earnings per share $1.50 $0.94
Quorum Health Group
3 months ended 9/30 FY1996 FY1995
Revenues (thousands) $253,712 $193,141
Net income (thousands) $14,580 $11,452
Earnings per share $0.29 $0.23
Health Management Associates
3 months ended 9/30 FY1995 FY1994
Revenues (thousands) $133,925 $108,640
Net income (thousands) $14,837 $11,289
Earnings per share $0.31 $0.24
Year ended 9/30
Revenues (thousands) $531,094 $438,366
Net income (thousands) $63,331 $46,536
Earnings per share $1.32 $0.98