HMA Sees Lower Earnings - Analyst Blog

Health Management Associates (HMA) reported a drastic fall in earnings to 7 cents per share in the second quarter of 2013 from 21 cents in the year-ago quarter, missing the Zacks Consensus Estimate by 6 cents. However, earnings were above the company's guidance of 5 cents. Adjusted earnings are calculated excluding the impact of approximately $19.3 million, or 4 cents per share, of interest rate swap accounting and mark-to-market adjustments on the swap.

Net revenues fell marginally by 0.5% to $1.5 billion and almost met the Zacks Consensus Estimate. Same hospital net revenues were $1.4 billion while same hospital net revenues per adjusted admission dipped 2.7% in the quarter.

HMA's provision for doubtful accounts was $240.9 million, or 14.1% of net revenue before the provision for doubtful accounts, compared to $214.6 million, or 12.7% in the second quarter of 2012.

Uninsured self-pay patient discounts were $369.0 million versus $311.9 million in the 2012-quarter. Charity/indigent care write-offs were $28.2 million compared with $24.3 million in the same quarter a year ago.

Health Management Associates had cash and cash equivalents of $29.2 million as of Jun 30, 2013, down from $59.2 million as of Dec 31, 2012. Long-term debt rose to $3.6 billion as of Jun 30, 2013 compared with $3.4 billion as of Dec 31, 2012.

In the first six months of 2013, cash flow from operating activities more than halved to $127.7 million from $291.0 million in the same period of 2012, mainly driven by lower earnings. Capital expenditure decreased to $143.0 million compared with $194.2 million a year ago.

Health Management Associates is a leading operator of general acute care hospitals. The company is engaged in the ownership and operation of general acute care hospitals in non-urban communities across the U.S. The company is an active acquirer of underperforming hospitals with a turnaround potential in high-growth markets.

Recently, HMA and peer Community Health Systems Inc. (CYH) disclosed a definitive merger agreement. According to the agreement, Community Health Systems will take over Health Management for about $7.6 billion (including the latter's debt of $3.7 billion) in cash and stock. The acquisition is expected to complete in the first quarter of 2014.

Currently, HMA carries a Zacks Rank #3 (Hold).  We are more positive about other stocks such as Acadia Healthcare Company, Inc. (ACHC) and HCA Holdings, Inc. (HCA), which carries a Zacks Rank #2 (Buy).