Tenet Healthcare Corporation‘s (THC) first quarter 2010 earnings (from continuing operations) of 16 cents per share easily surpassed the Zacks Consensus Estimate of 8 cents. The company earned (excluding special items) 9 cents per share in the year-ago quarter.
Net operating revenues in the reported quarter climbed 3.4% year over year to $2.34 billion. The increase reflected unit revenue improvement, higher acuity and a marginal rise in favorable prior year cost report adjustments. Unit revenue growth was particularly strong in the outpatient business. The business reported a 7.7% year-over-year increase in net outpatient revenue per visit in the reported quarter. Commercial managed care revenues climbed 2.8% year over year.
A mild flu season, coupled with weather-related disruptions in some of Tenet’s markets, softened patient volumes. Commercial managed care admissions and outpatient visits declined year over year by 7.2 % and 6.4 %, respectively. However, the acuity of those volumes increased. The trends pertaining to admissions as well as outpatient visits improved month-on-month in the reported quarter.
Total controllable operating expenses climbed 1.3%, or 3.5% per adjusted patient day in the reported quarter. This increase includes a 4.5% rise in salaries, wages and benefits per adjusted patient day. Other operating expenses fell by $5 million in the reported quarter.
Bad debt expense climbed 21.2% year over year in the reported quarter. The increase was primarily attributable to a year-over-year rise in uninsured admissions coupled with a decline in collection rates in the first quarter of 2010.
Tenet’s collection rate in the reported quarter from self-pay accounts declined to 29.9% from 31.4% in the year-ago quarter. The significant decline in charity volumes in the reported quarter moderated the growth in the cost of providing uncompensated care, which climbed $6 million year over year.
Tenet exited the quarter with cash and cash equivalents of $589 million, which reflected a decrease of $101 million since December 31, 2009. Capital expenditures for the quarter came in at $83 million.
Outlook Trimmed
Tenet now forecasts fiscal 2010 net operating revenues in the range of $9.3 billion-$9.5 billion, against the earlier projection of $9.35 billion – $9.55 billion.
Our Recommendation
Currently, we are Neutral on Tenet Healthcare. This implies that the stock is expected to perform in line with the overall U.S. equity market over the next 6−12 months. Consequently, we advise investors to retain the stock over the time period.
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