Community Health Has Surprise Quarterly Loss; Stock Plunges

  • `Things got worse, and it wasn't just the flu,' analyst says
  • Community considers selling some hospitals to pay down debt

Shares of Community Health Systems Inc., the U.S.’s second-largest chain of for-profit hospitals, plunged after the company reported an unexpected fourth-quarter loss.

The stock fell 22 percent to $14.53 at 3:24 p.m. New York time. Earlier they plunged as much as 31 percent to $12.86, the lowest intraday price since December 2008. With Tuesday’s drop, Community’s shares have lost more than 75 percent of their value since their 52-week closing high of $64.04 on June 26.

Business was hurt as fewer patients came to the hospital during a slow flu season. Total hospital admissions fell 3.6 percent from a year earlier, and fell 3.4 percent on a same-facility basis, Franklin, Tennessee-based Community Health said in a statement on Monday. Excluding certain items, the loss was 28 cents a share in the quarter, Community said in the statement. Net operating revenue fell 2.4 percent to $4.8 billion.

Unseasonably warm winter weather and what appears to be a well-matched vaccine have kept the flu virus at bay. As a result, many hospitals have signaled a drop in patient numbers in late 2015. The influenza virus thrives in a dry, cold environment, and the U.S. Climate Prediction Center in College Park, Maryland, has called for the northern and western U.S. to have mild temperatures through March.

‘Things Got Worse’

Among analysts surveyed by Bloomberg, 17 rate the stock a hold, seven rate it a buy and one a sell -- which includes three downgrades on Tuesday. Investors have been worried about slow growth, high levels of debt and more patients showing up for care without insurance coverage. 

“Things got worse, and it wasn’t just the flu,” Sheryl Skolnick, an analyst with Mizuho Securities USA, said Tuesday in a note to clients. “All the things we’ve worried about for Community Health have come home to roost in 4Q15 and likely in 2016.” She cited problems with free cash flow and concerns about a credit rating downgrade, and predicted that the company would have trouble turning things around this year. Skolnick cut her rating on the stock to underperform from neutral.

Community’s ratio of net debt to earnings before interest, taxes, depreciation and amortization was about 6.7, compared with 3.7 at rival LifePoint Health Inc. and 3.8 at HCA Holdings Inc. Community is looking at selling some hospitals that aren’t performing as expected or aren’t a good fit with its portfolio, and the proceeds would help the company pay down debt, Chief Executive Officer Wayne Smith said Tuesday on a conference call.

“There’s a good opportunity for us to monetize a number of facilities,” he said on the call.

Community needs to narrow its focus to hospitals where it can earn margins and cash flow, Skolnick said.

“Everything else should be sold at the appropriate time for the best possible price,” she said in a telephone interview. “That’s step one in how you fix the company.”

Income from continuing operations fell to a loss of $74 million, or 66 cents a share, from profit of $129 million, or $1.12, a year earlier, the company said.

Provision for bad debts during the quarter was $926 million, compared with $723 million in the year-earlier period, Community said. The adjustment to bad debt reduced net operating revenue and adjusted earnings before interest, taxes, depreciation and amortization by $169 million, or 96 cents a share, and income from continuing operations by $108 million, or 94 cents, the company said.

About 40 percent of the change was due to lower collection of deductibles and co-payments, and 20 percent due to an increase in personal bankruptcies, the company said Tuesday in a presentation.

This year, revenue excluding the provision for bad debts will be $20 billion to $20.6 billion, and income from continuing operations will be $3.40 to $3.80 a share, Community Health said. Analysts had estimated $20.3 billion in revenue and adjusted earnings of $3.68 a share for the year.

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