AmSurg Corp. (AMSG) reported an EPS of 43 cents in the fourth quarter of fiscal 2010, surpassing the Zacks Consensus Estimate by a penny and 41 cents in the year-ago period.

Results for the fourth quarter of 2010 had a negative impact of 1 cent from the revision of the Medicare payment system for ambulatory surgical centers (ASCs) and 4 cents due to higher interest cost related to debt refinancing. For the full year, the EPS was $1.69, a penny higher than the previous year. The Zacks Consensus Estimate for 2010 was $1.70.

AmSurg reported revenues of $184.7 million, surpassing the Zacks Consensus Estimate of $182 million and 11% higher than $166 million in the year-ago period. For 2010, the company reported an 8% increase in revenues to $710.4 million, missing the Zacks Consensus Estimate of $714 million.

The revenue growth during the quarter was based on a 9% growth in procedures coupled with a 2% rise in average revenue per procedure. While same-center revenues remained flat, procedure growth was seen primarily due to center expansion.

The average number of centers at the end of the quarter was 202, up from 190 in the year-ago period. Unchanged same-center revenues for the quarter are encouraging after a 2% decline in the third quarter.

Operating income increased 11% with operating margin remaining unchanged at 36.2%. Operating expenses increased 11.4% led by higher salaries and benefits (13.4% to $56.6 million), supply cost (14.9% to $24.3 million) coupled with a 6.4% rise in other operating expenses.

AmSurg exited 2010 with $34.1 million ($29.37 million at the end of 2009) of cash and cash equivalents and $283.2 million ($296 million at the end of 2009) in long-term debt.

In the second quarter of 2010, the company had refinanced its debt in the form of a revolving credit facility ($375 million) and private placement of senior notes ($75 million). We are pleased to note that the ratio of total debt to trailing twelve months EBITDA came down to 2.3 from 2.6 at the end of 2009.

Outlook

AmSurg provided outlook for 2011. The company expects to report an EPS of $1.64−$1.68 on revenues of $740−$770 million in 2011. While the Zacks Consensus EPS Estimate of $1.78 is way ahead of the company’s guidance, revenues have been in line with the outlook.

Moreover, for the first quarter of fiscal 2011, EPS is expected to be 37−39 cents, much below the Zacks Consensus Estimate of 42 cents.

Economic uncertainty continues to be the major concern for AmSurg. The company expects flat-to-declining same-center procedures in 2011. Moreover, significant margin pressure is expected based on the company’s various efforts to revive growth.

Recommendation

With a relatively solid development and acquisition pipeline in place, supported by a fairly strong cash position, we believe the company’s expansionary growth will continue over the medium term. However, we are also concerned about the reimbursement issues and economic uncertainty, which is reducing doctor visits by patients thereby impacting same center revenue.

We are currently Neutral on the stock.

 
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