HCA Healthcare (HCA 2.73%), the nation's largest for-profit hospital system, reported its fourth-quarter results on Tuesday, Jan. 30. While the recent changes to the U.S. tax code wreaked havoc on the company's net income and earnings per share, a closer look at the operating results showed that the hospital conglomerate continues to perform well. So well, in fact, that management has decided to accelerate its capital spending plans and is initiating a quarterly dividend.
HCA Healthcare Q4 results: The raw numbers
|
Metric |
Q4 2017 |
Q4 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$11.56 billion |
$10.64 billion |
8.6% |
|
Adjusted EBITDA |
$2.36 billion |
$2.20 billion |
7.1% |
|
Net income |
$474 million |
$920 million |
(48.4%) |
|
EPS |
$1.30 |
$2.39 |
(45.6%) |
Data source: HCA Healthcare. EBITDA = earnings before interest, taxes, depreciation, and amortization. EPS = earnings per share.
What happened with HCA Healthcare this quarter?
- The revenue gains were driven by a 2.3% increase in same facility equivalent admissions and a 3.5% increase in same facility revenue per admission.
- Operating expenses per equivalent admission grew by 3.3% year over year.
- Net income this quarter was impacted by a non-cash income tax charge of $301 million, or $0.83 per diluted share, related to the Tax Cuts and Jobs Act. In addition, the year-ago quarter included a total of $0.50 in gains related to the sale of a facility and a favorable legal claim. These factors were the primary driving force behind the big year-over-year drop in net income and EPS.
- The company spent $576 million to repurchase 7.2 million shares of common stock during the quarter. When combined with other repurchase activity from the year, total shares outstanding dropped 5.5% in 2017.
- HCA's board of directors initiated a new quarterly cash dividend of $0.35 per share.
- The company ended the year with 179 hospitals, 120 freestanding outpatient surgery centers, and 46,700 beds under its umbrella.
Image source: Getty Images.
What management had to say
HCA CEO R. Milton Johnson said that the company is well positioned for growth and was excited to share the dividend news with investors:
The initiation of a quarterly dividend demonstrates our confidence in the financial strength of our Company and the cash flow it generates. We believe our cash flow from operations will allow us to continue to invest in our existing markets, and pursue acquisition opportunities, while also returning capital to stockholders. The announcement today reinforces our commitment to delivering value to stockholders while investing for future growth.
Looking forward
Management provided investors with the following guidance for 2018:
| Metric | 2018 Guidance | 2017 Actual | Year-Over-Year Change at Midpoint |
|---|---|---|---|
| Revenue | $45 to $46 billion | $43.6 billion | 4.3% |
| Adjusted EBITDA | $8.45 to $8.75 billion | $8.23 billion | 4.5% |
| EPS | $8.50 to $9.00 | $5.95 | 47% |
Data source: HCA Healthcare.
While the EPS growth looks especially strong, management was quick to point out that this guidance includes a $0.14-per-share income tax benefit and a $1.35-per-share gain related to the new tax bill. What's more, EPS in 2017 was impacted by Hurricanes Harvey and Irma, which makes the year-over-year comparison look more favorable.
Management also announced that it has decided to accelerate its capital spending plans over the next three years to take advantage of growth opportunities. This new plan calls for $10.5 billion in total spending, which is quite a bit higher than its prior plan of $8.2 billion.
In total, HCA ended 2017 in good shape, and management is positioning the company for continued growth.
