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Encompass Health (EHC) Up 4.7% Despite Q2 Earnings Miss
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Encompass Health Corporation’s (EHC - Free Report) shares rose 4.7% since it reported second-quarter results on Aug 1. Despite reporting weaker-than-expected results, investors are hopeful about its focus on Inpatient Rehabilitation and the related profitability increase. The expected revenue and adjusted EBITDA growth might have intrigued investors. Also, the staffing challenges are likely to gradually decline in the second half, boosting profits.
Encompass Health delivered second-quarter 2022 adjusted earnings of 89 cents per share, which missed the Zacks Consensus Estimate of 97 cents. The bottom line declined 23.9% year over year.
Encompass Health’s net operating revenues advanced 3.3% year over year to $1,330.5 million in the second quarter. The top line also missed the consensus mark of $1,349 million.
The weaker-than-expected second-quarter results were caused by rising operating expenses, staffing challenges, higher utilization in Inpatient Rehabilitation, and weak Home Health and Hospice performance. The negatives were partially offset by favorable volumes and pricing.
Encompass Health Corporation Price, Consensus and EPS Surprise
Adjusted EBITDA of $240.2 million declined 13.9% year over year in the quarter under review.
Total operating expenses of $1,168.4 million increased from $1,068.7 million a year ago due to higher salaries and benefits, other operating costs, and general and administrative expenses. General and administrative expenses, excluding stock-based compensation, decreased 22.3% year over year to $28.6 million in the second quarter. This doesn’t include expenses related to the strategic alternative review of its home health and hospice business.
Segmental Results
With the latest earnings release, the company incorporated the Home Health and Hospice results. EHC completed the spin-off of its home health and hospice business into an independent company on Jul 1, 2022. The new entity is named Enhabit, Inc. (EHAB). With the spin-off of this unit, the company plans to focus on and grow its core business, Inpatient Rehabilitation. From the next quarter, Encompass Health plans to report Enhabit’s historical results in discontinued operations.
Inpatient Rehabilitation
Revenues in the segment amounted to $1,062.5 million, which improved 6.1% year over year. This growth came on the back of a 6.2% rise in revenues from the inpatient business, riding on favorable pricing and volume growth.
Net patient revenues per discharge witnessed a 1.3% year-over-year increase, primarily resulting from increased reimbursement rates. Adjusted EBITDA declined 11.4% year over year to $225 million in the second quarter, attributable to higher utilization and costs related to staffing.
Home Health and Hospice
In the second quarter, the segment’s revenues of $268 million decreased 6.3% year over year, owing to a 5.2% decline in revenues at the Home Health sub-unit, and an 11.2% slip in the Hospice business. Adjusted EBITDA declined 29% year over year to $43.8 million in the second quarter.
Financial Update (as of Jun 30, 2022)
Encompass Health exited second-quarter 2022 with cash and cash equivalents of $186.5 million, up from the 2021-end figure of $54.8 million. Total assets of $7,082.2 million increased from $6,864.9 million at 2021 end.
Its long-term debt, net of current portion, totaled $3,233.5 million, which dropped from $3,243.9 million as of Dec 31, 2021. The current portion of long-term debt was recorded at $49.2 million.
Net operating cash flow was recorded at $244.6 million in the second quarter of 2022, down from $255.9 million a year ago. Adjusted free cash flow was at $205.7 million compared with $205.6 million a year ago.
2022 Outlook
EHC provided guidance for its Inpatient Rehabilitation business.
This year, management anticipates net operating revenues within $4,250-$4,300 million, up from $4,015 million in 2021. Adjusted EBITDA is projected in the range of $820-$840 million for 2022, increasing from $817 million a year ago. Adjusted earnings per share from continuing operations are forecast between $2.77 and $2.91 for the current year, down from $2.93 in 2021.
Adjusted free cash flow for 2022 is expected within $280-$380 million compared with $354.2 million in 2021. It expects the tax rate to be around 26%. Diluted shares will likely be around 100 million. The company has around $198 million left under its share buyback program.
Encompass Health intends to open three additional de novo locations and increase the bed count by 20 in existing facilities. Further, it expects to open nine de novo locations in 2023 with 100-150 bed additions in existing hospitals.
Zacks Rank & Key Picks
Encompass Health currently carries a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for Molina Healthcare’s 2022 bottom line indicates a 29.6% increase from the prior year’s reported number. MOH beat earnings estimates in each of the past four quarters, with the average being 3.2%.
The Zacks Consensus Estimate for Elevance’s 2022 bottom line indicates 10.4% year-over-year growth. ELV beat earnings estimates in each of the past four quarters, with the average being 4.3%.
The Zacks Consensus Estimate for Agenus’ 2023 bottom line indicates a 28.1% year-over-year improvement. AGEN beat earnings estimates thrice in the past four quarters and missed once, with the average surprise being 12%.
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Encompass Health (EHC) Up 4.7% Despite Q2 Earnings Miss
Encompass Health Corporation’s (EHC - Free Report) shares rose 4.7% since it reported second-quarter results on Aug 1. Despite reporting weaker-than-expected results, investors are hopeful about its focus on Inpatient Rehabilitation and the related profitability increase. The expected revenue and adjusted EBITDA growth might have intrigued investors. Also, the staffing challenges are likely to gradually decline in the second half, boosting profits.
Encompass Health delivered second-quarter 2022 adjusted earnings of 89 cents per share, which missed the Zacks Consensus Estimate of 97 cents. The bottom line declined 23.9% year over year.
Encompass Health’s net operating revenues advanced 3.3% year over year to $1,330.5 million in the second quarter. The top line also missed the consensus mark of $1,349 million.
The weaker-than-expected second-quarter results were caused by rising operating expenses, staffing challenges, higher utilization in Inpatient Rehabilitation, and weak Home Health and Hospice performance. The negatives were partially offset by favorable volumes and pricing.
Encompass Health Corporation Price, Consensus and EPS Surprise
Encompass Health Corporation price-consensus-eps-surprise-chart | Encompass Health Corporation Quote
Q2 Performance
Adjusted EBITDA of $240.2 million declined 13.9% year over year in the quarter under review.
Total operating expenses of $1,168.4 million increased from $1,068.7 million a year ago due to higher salaries and benefits, other operating costs, and general and administrative expenses. General and administrative expenses, excluding stock-based compensation, decreased 22.3% year over year to $28.6 million in the second quarter. This doesn’t include expenses related to the strategic alternative review of its home health and hospice business.
Segmental Results
With the latest earnings release, the company incorporated the Home Health and Hospice results. EHC completed the spin-off of its home health and hospice business into an independent company on Jul 1, 2022. The new entity is named Enhabit, Inc. (EHAB). With the spin-off of this unit, the company plans to focus on and grow its core business, Inpatient Rehabilitation. From the next quarter, Encompass Health plans to report Enhabit’s historical results in discontinued operations.
Inpatient Rehabilitation
Revenues in the segment amounted to $1,062.5 million, which improved 6.1% year over year. This growth came on the back of a 6.2% rise in revenues from the inpatient business, riding on favorable pricing and volume growth.
Net patient revenues per discharge witnessed a 1.3% year-over-year increase, primarily resulting from increased reimbursement rates. Adjusted EBITDA declined 11.4% year over year to $225 million in the second quarter, attributable to higher utilization and costs related to staffing.
Home Health and Hospice
In the second quarter, the segment’s revenues of $268 million decreased 6.3% year over year, owing to a 5.2% decline in revenues at the Home Health sub-unit, and an 11.2% slip in the Hospice business. Adjusted EBITDA declined 29% year over year to $43.8 million in the second quarter.
Financial Update (as of Jun 30, 2022)
Encompass Health exited second-quarter 2022 with cash and cash equivalents of $186.5 million, up from the 2021-end figure of $54.8 million. Total assets of $7,082.2 million increased from $6,864.9 million at 2021 end.
Its long-term debt, net of current portion, totaled $3,233.5 million, which dropped from $3,243.9 million as of Dec 31, 2021. The current portion of long-term debt was recorded at $49.2 million.
Net operating cash flow was recorded at $244.6 million in the second quarter of 2022, down from $255.9 million a year ago. Adjusted free cash flow was at $205.7 million compared with $205.6 million a year ago.
2022 Outlook
EHC provided guidance for its Inpatient Rehabilitation business.
This year, management anticipates net operating revenues within $4,250-$4,300 million, up from $4,015 million in 2021. Adjusted EBITDA is projected in the range of $820-$840 million for 2022, increasing from $817 million a year ago. Adjusted earnings per share from continuing operations are forecast between $2.77 and $2.91 for the current year, down from $2.93 in 2021.
Adjusted free cash flow for 2022 is expected within $280-$380 million compared with $354.2 million in 2021. It expects the tax rate to be around 26%. Diluted shares will likely be around 100 million. The company has around $198 million left under its share buyback program.
Encompass Health intends to open three additional de novo locations and increase the bed count by 20 in existing facilities. Further, it expects to open nine de novo locations in 2023 with 100-150 bed additions in existing hospitals.
Zacks Rank & Key Picks
Encompass Health currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the broader medicalspace are Molina Healthcare, Inc. (MOH - Free Report) , Elevance Health Inc. (ELV - Free Report) and Agenus Inc. (AGEN - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Molina Healthcare’s 2022 bottom line indicates a 29.6% increase from the prior year’s reported number. MOH beat earnings estimates in each of the past four quarters, with the average being 3.2%.
The Zacks Consensus Estimate for Elevance’s 2022 bottom line indicates 10.4% year-over-year growth. ELV beat earnings estimates in each of the past four quarters, with the average being 4.3%.
The Zacks Consensus Estimate for Agenus’ 2023 bottom line indicates a 28.1% year-over-year improvement. AGEN beat earnings estimates thrice in the past four quarters and missed once, with the average surprise being 12%.