Tenet’s Profit Rises 30%, Beating Forecasts

Hospital operator Tenet HealthCare Corp. said Thursday that its fiscal second-quarter earnings rose nearly 30%, handily beating Wall Street’s expectations, on strong growth in patient admissions and gains in reimbursement.

Santa Barbara-based Tenet also said, based on the strength of results in the first half of fiscal 2001, the company is upwardly revising its earnings guidance for the fiscal year ending in May.

Tenet, the second-largest hospital chain, now expects diluted per-share earnings from operations to increase 20% or more over the $1.81 posted in fiscal 2000. The company had said it expected growth in the mid-teens.

Despite the strong performance in its second quarter and the improved earnings outlook, shares of Tenet fell $2.44, or about 6%, to close at $39 on the New York Stock Exchange on Thursday.

In the three months ended Nov. 30, Tenet said, its net income rose 29.6%, to $175 million from $135 million, in the year-ago quarter. Excluding acquisition-related goodwill charges, net income was $196 million, or 60 cents a share, compared with $155 million, or 49 cents a share, in the year-ago quarter.

Diluted earnings per share from operations rose 26%, to 54 cents from 43 cents, and beat an analysts’ consensus expectation of 50 cents a share as polled by First Call/Thomson Financial, which tracks earnings data.

The earnings performance was bolstered by strong growth in revenue, including an increase in revenue-per-patient admission and strength in patient admissions, analysts said.

Net operating revenue jumped 5% to $2.92 billion despite the fact that Tenet operated fewer hospitals in the latest quarter. On a same-facility basis, net operating revenue rose 7.6% compared with the year-ago quarter.

Net patient revenue per admission grew 6.2% compared with analysts’ expectations of about 4% or 5%. In addition, admissions on a same-facility basis rose 4.2% from the year-ago quarter, surpassing the company’s historical growth rate of about 2%.

“The quarter was truly spectacular by any measure,” said Credit Suisse First Boston analyst John Hindelong. “It’s really a coming together of a strategy they implemented back two years ago [that] represents a focus on improved performance with less attention to growth by acquisitions.”

The company also credited its performance to initiatives implemented two years ago.

“Clearly, those strategies are working,” Jeffrey Barbakow, Tenet’s chairman and chief executive, said. “Our efforts have generated terrific momentum.”

Analysts also said significant investments in Tenet’s facilities and medical equipment, as well as an improved strategy with physicians, helped attract patients to Tenet’s hospitals.

“Basically, where they get [patient] volume is by building relationships with doctors,” said Oliver Marti, a portfolio manager at Columbus Circle Investors. “They also invested in assets to add services that are going to enable HMOs and doctors to feel more comfortable sending their patients to their hospitals.”