DaVita Healthcare Misses on Q1 Earnings, Updates Guidance - Analyst Blog

DaVita HealthCare Partners Inc. DVA reported first-quarter 2014 adjusted operating earnings of 85 cents per share that missed the Zacks Consensus Estimate of 87 cents. Earnings also declined from the year-ago number of 92 cents per share.

Disappointing performance by the HealthCare Partners segment mainly led to the downside.

Including amortization of intangible assets associated with acquisitions, DaVita HealthCare's net income came in at 97 cents per share, down from $1.03 per share in the year-ago quarter.

Operational Update

Total net revenue increased from $2.8 billion in the prior-year quarter to approximately $3.04 billion. The top line was in line with the Zacks Consensus Estimate. The year-over-year increase was mainly attributable to higher patient service revenues, capitated revenues and other revenues.

Total operating expenses and charges were $2.6 billion in the reported quarter, down from $2.7 billion in the year-ago period. This was primarily attributable to increased patient care costs and other costs.

Total U.S. dialysis treatments in the reported quarter came in at approximately 6 million or 78,215 treatments per day. This represents a per day increase of 6.3% over the year-ago quarter. Growth of non-acquired treatment in the quarter was 5.5%.

During the reported quarter, DaVita HealthCare acquired one dialysis center and opened 24 centers in the U.S. Additionally, the company took over one dialysis center and opened one new dialysis center outside the U.S.

DaVita HealthCare's adjusted effective tax rate stood at 37.1% in the reported quarter, higher than the prior-year quarter equivalent of 24.6%. The third-party owners' income, attributable to non-tax paying entities, impacted the effective tax rate. The adjusted effective tax rate attributable to DaVita HealthCare in the reported quarter was 40.5%, lower than 40.7% in the year-ago quarter.

Segment Update

Revenues from the Dialysis and Related Lab Services segment amounted to $1.96 billion, up 5.7% year over year. Operating income at the segment also increased a whopping 355% year over year to $387 million in the reported quarter.

HealthCare Partners HCP generated revenues of $841 million in the quarter, surging 4.6% year over year. However, operating income in the segment declined to $54 million from $108 million in the year-ago quarter.

Ancillary Services and Strategic Initiatives recorded revenues of $257 million, higher than $184 million in the first quarter of 2013. Operating income during the quarter was $2 million that rebounded from an operating loss of $15 million reported in the previous-year quarter.

Financial Update

Total cash and cash equivalents of DaVita HealthCare increased to $1.1 billion as of March 31, 2014 from $946.2 million as of end-2013.

Net cash flow from operating activities in the first quarter of 2014 came in at $419.1 million, up 10.5% year over year.

DaVita HealthCare's long-term debt as of March 31, 2014 stood at $8.07 billion, down from $8.14 billion as of Dec 31, 2014.

2014 Guidance

DaVita HealthCare lowered the upper end of its operating income guidance to $1.840 billion from $1.860 billion. Thus, the new guidance range stands at $1.725–$1.840 billion, compared with the previously guided $1.725–$1.860 billion range. Additionally, DaVita HealthCare raised the operating income guidance for the dialysis services and related ancillary businesses, including corporate level expenses (together referred to as Kidney Care) for 2014 to $1.520–$1.580 billion from $1.475–$1.550 billion.

DaVita HealthCare lowered the guidance for 2014 operating income for HCP to $205–$260 million from $250–$310 million. This also compares unfavorably with $385 million reported at end-2013.

DaVita HealthCare reiterated its total operating cash flow projection for 2014 at $1.45 billion to $1.55 billion.

Performance of Other Healthcare Service stocks

Molina Healthcare Inc. MOH reported its first-quarter 2014 operating earnings of 10 cents per share, beating the Zacks Consensus of break-even.  

WellPoint Inc. WLP reported first-quarter 2014 adjusted income of $2.30 per share, beating the Zacks Consensus Estimate of $2.12 per share.

Zacks Rank

DaVita HealthCare presently carries a Zacks Rank #4 (Sell). However, RadNet, Inc. RDNT is a better-ranked stock worth considering in the healthcare services space.