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DaVita HealthCare (DVA) Q1 Earnings Beat as Revenues Rise

DaVita HealthCare Partners Inc. DVA reported first-quarter 2016 adjusted operating earnings of 92 cents per share that surpassed the Zacks Consensus Estimate of 87 cents by 5.75%. Earnings increased 7% year on year.

The outperformance was attributable to improved revenues.

Net income per share, including a goodwill impairment charge and accrual for damages and liabilities associated with its HCP Nevada hospice business, amounted to 47 cents per share, rebounding from year ago loss of  52 cents per share.

Operational Update

Total revenue increased 8.2% year over year to approximately $3.6 billion and came in slightly above the Zacks Consensus Estimate of $3.5 billion. The year-over-year improvement was mainly attributable to rise in patient service revenues, capitated revenues and other revenues.

Total operating expenses and charges of DaVita Healthcare were $3.2 billion in the reported quarter, down 4% year over year. This includes a $0.5 billion settlement charge incurred in the prior-year quarter. Excluding this, however, expenses increased 12.6% year over year. Higher patient care costs and other costs, general and administrative charges, and depreciation and amortization expenses in the quarter were the primary reasons behind the increase in expenses. The company also incurred a goodwill impairment charge of $77 million in the first quarter.

Total U.S. dialysis treatments in the first quarter were approximately 6.6 million or 85,236 treatments per day. This represents a per day increase of 4.3% year over year. Normalized non-acquired treatment grew 4.1% in the reported quarter.

In the first quarter, DaVita Healthcare opened 30 new dialysis centers. The company also closed four centers and sold one in the U.S. Moreover, the company acquired one and opened five dialysis centers outside the U.S. in the same period.

Segment Update

Revenues from the Dialysis and Related Lab Services segment amounted to approximately $2.2 billion, up 7.5% year over year. The segment reported an adjusted operating income of $440 million, up 12.5% from $391 million in the prior-year quarter.

HealthCare Partners (“HCP”) generated revenues of $1 billion in the quarter, up 6.6% year over year. The segment reported an adjusted operating income of $36 million, down 40% from $60 million in the prior-year quarter.

Ancillary services and strategic initiatives recorded revenues of $391 million, up 28.2% from $305 million in the first quarter of 2015. Operating loss during the reported quarter was $11 million, narrower than the year-ago loss of $14 million.

Financial Update

Total cash and cash equivalents of DaVita Healthcare plunged 33.3% to $1 billion as of Mar 31, 2016 from $1.5 billion as of Dec 31, 2015.

Cash from operations was $429 million in the reported quarter as against $410 million in the year-ago quarter

DaVita Healthcare’s long-term debt as of Mar 31, 2016 was $9 billion, down 0.2% from year-end 2015.

Share Repurchase Update

DaVita Healthcare spent $249 million to buy back 3.7 million shares in the first quarter at an average price of $67.61 per share. Currently, the company is left with shares worth $259 million under its authorization.
Guidance for 2016

Management projected DaVita Healthcare’s consolidated operating income to be in the range of $1.80–$1.95 billion.

The company also projected operating income for Kidney Care in the range of $1.625–$1.725 billion and operating income for HCP is now anticipated in the range of $175–$225 million.

Operating cash flow is expected to be in the range of $1.550–$1.750 billion.

Zacks Rank and Performance of Other Healthcare Service Insurers

DaVita Healthcare carries a Zacks Rank #3 (Hold). Among other stocks in the health care space the bottom line of Humana Inc.  HUM and Anthem, Inc. ANTM beat the Zacks Consensus Estimate in the first quarter, whereas the Molina Healthcare, Inc.’s MOH earnings missed the same.

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