Housekeeping and nutritional services expert Healthcare Services Group (HCSG +1.57%) reported its third-quarter results on Wednesday, Oct. 17. The company is still trying to earn back investors' trust after it struck out with its first-quarter earnings report. Thankfully, the company was able to right the ship after its second-quarter report as the business returned to growth.
Are the company's troubles officially in the rearview mirror? Let's dig into the details to find out.
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Healthcare Services Group third-quarter results: The raw numbers
|
Metric |
Q3 2018 |
Q3 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Sales |
$507 million |
$491 million |
3% |
|
Net income |
$26.1 million |
$23.5 million |
11% |
|
Earnings per share |
$0.35 |
$0.31 |
13% |
Data source: Healthcare Services Group.
What happened with Healthcare Services Group this quarter?
- Healthcare Services Group adjusted its contracts with two of its troubled regional customers during the quarter. The updated agreements will impact housekeeping and laundry revenue by about $10 million per quarter. Half of that decrease was felt in the third quarter, which helps to explain the tepid top-line growth. On the positive side, management noted that the change would positively impact margins.
- Housekeeping revenues declined about 1% sequentially to $242 million as a result of the contract modifications. Nutrition services grew 9% to $264 million.
- Housekeeping margins were 11.3% while dining margins were 6.2%.
- Adjusted selling, general, and administrative (SG&A) expenses were 6.9% of revenue. This was up 30 basis points sequentially, but remains below management's target of 7%.
- For the 61st quarter in a row, the company boosted its dividend payment. The new rate is $0.195 per share.
What management had to say
Healthcare Services Group prefers to let the numbers speak for themselves. However, on the recent call with investors, CEO Ted Wahl said the company continues to make progress against its strategic objectives, even though he admitted that there is still more work to do: "During the third quarter, we made significant progress on our 2018 priorities, some of which is not fully reflected in the Q3 results, and toward meeting our end-of-year goals of adhering to our facility-level operating systems."
Wahl also stated that the company is working to speed up the frequency of customer payments so that cash flow and net income are closer together.
Looking forward
Chief Communications Officer Matthew McKee didn't provide investors with revenue and net income guidance, but he did reiterate some of the company's financial targets. These include returning direct costs to 86% of revenue by the end of the year, and keeping SG&A costs below 7% of revenue.
McKee said that the tax rate is expected to hover around 21% for the remainder of the year. The capital return program will be focused on increasing the dividend.
As usual, Wahl ended his prepared remarks on the call by restating that the company is focused on delivering against its future objectives: "Our priorities will remain the same over the next three months as we look to finish the year strong, and lay the groundwork for a successful 2019 and beyond."
