Sometimes even highly profitable healthcare companies run into rough times in today's turbulent financial markets.
Rural hospital company Health Management Associates, which has been known as a consistently successful chain, surprised Wall Street last week by announcing it would miss its third-quarter earnings target.
Wall Street doesn't like surprises, and the HMA warning sent the company's stock into a tailspin, setting a 52-week low.
Naples, Fla.-based HMA warned last week that its earnings would be flat for the company's third quarter, ended June 30. This week, HMA is expected to report earnings per share of 15 cents for the quarter-the same figure it reported during the year-ago period-instead of the 18 cents per share analysts had expected, according to the warning.
The company attributed the earnings disappointment to slower-than-anticipated admissions growth, timing of hospital acquisitions and the effects of the Balanced Budget Act of 1997 on its home-care operations. The difficulties are likely to continue through Sept. 30, the end of its fiscal year, company officials predicted.
"Our admissions were up 1% for the quarter, which is low for our company, although not low for the industry," said William Schoen, HMA's chairman and chief executive officer.
Schoen said the company plans to tighten cost controls to increase operating efficiencies.
HMA expects to report net patient service revenues of $352 million for the third quarter, up 16.5% from $302.2 million reported in the year-ago quarter, according to last week's announcement. The for-profit company, which has 36 hospitals in 12 states, plans to formally release its quarterly earnings July 20.
Healthcare analysts and investors took the news hard, as reflected by the drop in HMA stock.
HMA shares, which trade on the New York Stock Exchange, closed July 13, the day of the announcement, at $8 per share, losing 29% of their value and sinking below the company's 52-week low of $10.19 per share.
Some healthcare analysts said they felt betrayed by HMA's earnings warning because in June the company tried to reassure the investment community that it would meet earnings targets. Several said HMA's top executives had called them just over a month ago to assure them the company would not have a disappointing quarter.
Healthcare executives also expressed surprise and dismay at the announcement, citing HMA's strong track record for earnings growth.
"They were the ones who sort of dodged all the bullets," said Sheryl Skolnick, senior healthcare analyst at BankBoston Robertson Stephens in New York.
Skolnick said a healthier population may be partly to blame for HMA's slowed admissions growth. Her firm lowered HMA's rating from "buy" to "long-term attractive" based on the earnings warning.
W. Hudson Connery Jr., former chief operating officer of Healthtrust-The Hospital Co. and founder, president and CEO of start-up hospital company Essent Healthcare, called HMA's news "sobering."
"They are clearly viewed, I think, by people across the industry as one of the best of the best," he said.
Schoen said the company's three acquisitions during the quarter-in Key West, Fla., central Mississippi, and Lancaster, Pa.-and the opening of two new hospitals in the Carolinas took their toll on the company's balance sheet.
Schoen also said shareholders' reaction to the announcement was "unsettling" given that HMA will report a healthy profit for the quarter.
"You would have thought we'd made an announcement that we were losing money," he said.