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HCA Healthcare's Profits Jump

By Brian Feroldi – May 2, 2018 at 12:28PM

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Higher admissions and asset sales have revenue and net income marching in the right direction.

HCA Healthcare (HCA -2.07%) reported its first-quarter results on Tuesday. The for-profit hospital conglomerate saw steady revenue growth and a huge jump in net income thanks to favorable changes to the U.S. tax code and asset sales. Management also used its considerable financial resources to reward shareholders with a healthy amount of buybacks and a newly created quarterly dividend

HCA Healthcare Q1 results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Revenue

$11.42 billion

$10.62 billion

7.5%

Adjusted EBITDA

$2.12 billion

$2.01 billion

6%

Net income 

$1.14 billion

$659 million

73%

EPS

$3.18

$1.74

83% 

Data source: HCA Healthcare. EBITDA = earnings before interest, taxes, depreciation, and amortization. 

What happened with HCA Healthcare this quarter?

  • Sales growth was driven by a 1.8% increase in same-facility equivalent admissions and a 3.9% increase in same-facility revenue per admission.
  • The company closed on the divestiture of its facilities that were based in Oklahoma during the period. It also completed the acquisition of Memorial Health, a hospital system based in Georgia. 
  • The huge jump in net income and earnings per share (EPS) includes a $405 million gain from the sale of its properties in Oklahoma and a $92 million tax benefit. When combined, they boosted EPS by $1.11 per share.
  • Cash flows from operating activities grew 2% to $1.3 billion.
  • HCA spend $423 million on stock buybacks during the quarter, which reduced the share count by 4.37 million. All told, the company's diluted share count shrunk by more than 5% over the last year. The company still had the green light to buy back up to $1.4 billion more of its common stock as of the end of March.
  • The company's newly initiated quarterly dividend of $0.35 will be paid at the end of June.
  • HCA's empire at quarter-end included 178 hospitals, 120 outpatient surgery centers, and 46,745 beds.
Doctor giving the thumbs up

Image source: Getty Images.

What management had to say

CEO R. Milton Johnson called the company's first-quarter results "solid." He also noted that the company remains very active with mergers and acquisitions and is pursuing a large deal for a hospital system based in North Carolina:

[W]e have signed a nonbinding letter of intent to purchase Mission Health based in Asheville, North Carolina. Mission is a system of six hospitals combined with several other sites of care in western North Carolina. We are excited to move forward with our due diligence and exclusive discussions with this outstanding organization.

COO Samuel Hazen also offered investors some comment on the company's strong track record of execution: "HCA has now grown same-facilities admissions and emergency room visits in 16 consecutive quarters. We believe this consistent pattern of growth is a result of positive macro factors in our markets and a comprehensive growth agenda that is both well resourced and well executed."

Looking forward

Management reaffirmed its guidance for 2018, which calls for revenue growth of about 4.3% and EPS growth of 47% at the midpoint. However, investors need to remember that EPS growth is being boosted by the recent changes to the tax code.

Johnson ended his prepared remarks on HCA's conference call with investors by stating that the company remains in great shape to continue delivering for shareholders: "I believe we are well positioned for growth as we continue to invest capital in large growing markets, execute our growth agenda, and deliver high-quality care for our patients."

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool recommends HCA Healthcare. The Motley Fool has a disclosure policy.

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