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HCA Healthcare Reports Positive Earnings

By Brian Feroldi - Jul 27, 2018 at 10:21AM

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A reduced tax bill and operational improvements drove net income up by double digits.

Hospital conglomerate HCA Healthcare ( HCA -0.47% ) reported its second-quarter results on Wednesday, July 25. Revenue continued to climb at a moderate pace on the back of growing admissions. At the same time, a lower tax rate and stock buybacks helped drive earnings per share up 32%.

Let's put the company's results under a microscope to find out what else went right during the period.

Four medical professionals in blue scrubs walk down a hallway.

Image source: Getty Images.

HCA Healthcare Q2 results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$11.53 billion

$10.73 billion

7.4%

Adjusted EBITDA

$2.23 billion

$2.09 billion

6.6%

Net income 

$820 million

$657 million

25%

EPS

$2.31

$1.75

32% 

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

What happened with HCA Healthcare this quarter?

  • Same-facility equivalent admissions rose 2.8%.
  • Operating expenses grew 7.5% during the period, slightly outpacing overall revenue growth. 
  • HCA recognized a tax benefit of $121 million, or $0.34 per share, during the period related to the Tax Cuts and Jobs Act.
  • Cash balance at quarter end totaled $868 million. Total debt was $33.2 billion. 
  • Cash flows from operating activities grew 13% to $1.6 billion.
  • HCA spent $470 million on stock-buybacks during the quarter. A total of 4.67 million shares were repurchased during the period. At quarter end, management still has the green light to buy back up to $910 million in additional stock. 

What management had to say

CEO R. Milton Johnson kept his commentary on the quarter focused on business growth drivers:

Revenue growth driven by solid volume and rate growth combined with good expense management provided strong adjusted EBITDA growth for the quarter. This is the third consecutive quarter of a solid adjusted EBITDA growth for the company.

President and COO Samuel N. Hazen also offered investors some positive commentary on the macro environment:

HCA has now grown same-facility admissions in 17 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

The strong quarter caused management to boost guidance for the full year 2018. Here's a look at the updated numbers and their implied growth rates:

Metric Updated 2018 Guidance 2017 Actual Implied Change (at Midpoint for Revenue)
Revenue $45.5 billion to $46.5 billion $43.6 billion 5.5%
Adjusted EBITDA $8.65 billion to $8.85 billion $8.23 billion 6.3%
EPS $9 to $9.40 $5.95 55%

Data source: HCA Holdings.

This updated guidance compares favorably to the 4.3% revenue growth rate and 47% EPS growth rate that management had projected last quarter. However, management reminded investors that this range includes a $1.25 boost to EPS related to the recent changes to the U.S. tax code.

Overall, HCA's steadily improving results continue to show that the business is executing at a high level. With a large share repurchase authorization in place and a newly initiated dividend program ramping up, this business remains well positioned to continue delivering for its shareholders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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