King Of Prussia, Pennsylvania-based Universal Health Services Inc. (NYSE: UHS) estimates that its annual earnings will be about 19% lower than originally projected.
On Thursday, UHS released new, lower annual revenue and earnings estimates after seeing significantly lower than expected profitability in April and May. The shortfall was “due primarily to lower than expected patient volumes, revenues and income generated at our acute care hospitals,” according to a news release.
In April, the behavioral health and acute care facility operator disclosed that worse-than-expected financial performance in the first quarter could lead the company to adjust its financial guidance. The company had not done so until now while other hospital operators such as HCA Healthcare Inc. (NYSE: HCA) did during the first quarter.
In the first quarter, the company’s behavioral health business, which operates 336 facilities in the U.S. and the U.K., saw staffing shortages drive up labor costs while limiting patient volumes.
UHS management said these trends continue for the behavioral health business.
“However, the shortfalls from internal expectations experienced within our behavioral health segment were relatively consistent with those experienced during the first quarter of 2022,” the release states.
Here are the new figures and how they compared to the original guidance:
Net revenue
— Low estimate: $13.24 billion, -1.41%
— High estimate: $13.37 billion, -2.36%
Adjusted earnings per share
— Low estimate: $9.60, -19.33%
— High estimate: $10.40, -19.38%
UHS also estimates that its second quarter earnings per share will be $2.05 to $2.15 per share, the news release states.
The company still assumes with this new guidance that trends around workforce shortages, labor costs, COVID-19 and non-COVID-19 patient volume will improve but at an even slower pace than anticipated.
“We believe these assumptions will be bolstered by our continuing recruitment and retention initiatives, by changes to our historical patient care models, by other cost-cutting measures and by aggressive contractual negotiations and renegotiations with our managed care payers,” the release states.
UHS also operates 28 acute care hospitals, 41 outpatient facilities and ambulatory care access points, an insurance offering, a physician network and various related services in 39 U.S. states, Washington, D.C., Puerto Rico and the United Kingdom.
Stephens Inc. released a research note on Thursday about the announcement, calling many of the issues “already well understood by investors.” However, it lowered its “target price” for UHS’ shares to $105, a 22% reduction from its previous target price of $135.
UHS’ share price closed at $100.71 on Thursday. That price is down about 5.7% for the day and about 23.4% year-to-date. It was trading at $103.79 — up 3% on the day and down 21.4% year-to-date — when this article was published
“A stabilizing or improving behavioral health length of stay (LOS) experience relative to recent declines could offer a meaningful upside catalyst for shares of UHS given that this metric has become a key focal point of the investment community,” the Stephens note states, saying that decreases in behavioral health LOS could hurt the stock.
The note also states that UHS could benefit from additional Medicaid expansions, notably in Florida and Texas, neither of which expanded eligibility and access to Medicaid following the implementation of the Affordable Care Act.
These states are two of 12 that have not expanded Medicaid access. For a household of three members (roughly the average of both states), Medicaid is only available if the household’s pre-tax income is under about $30,600 in Florida and $45,600 in Texas.
Texas and Florida are the most significant U.S. markets for UHS.
UHS operates 23 facilities in Florida and 42 facilities in Texas as of the end of 2021, according to its latest annual financial report filed with the Securities and Exchange Commission.
“We receive annual Medicaid revenues of approximately $100 million, or greater, from each of Texas, California, Nevada, Illinois, Pennsylvania, Washington, D.C., Kentucky, Florida and Massachusetts,” the filing states.
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