Tenet Raises Full-Year Earnings Guidance Again

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Dive Brief:

• Tenet Healthcare reported second-quarter earnings Wednesday that beat analysts’ estimates, drawing in a net income of $259 million on strong demand for outpatient services. 
• The Dallas-based provider raised its full-year guidance again following the results. Tenet was the only major for-profit provider to raise its full-year forecast following first-quarter earnings.
• Tenet now expects to bring in $3.8 billion to $4 billion in adjusted earnings before interest, taxes, depreciation and amortization — a $300 million increase over previous projections. 

Dive Insight:

During the earnings call Wednesday, one analyst remarked Tenet’s performance this year has been “arguably one of the strongest first-half margin performances in the company’s history.”

Tenet CEO Saum Sutaria has spent the past several quarters attempting to introduce investors to a new Tenet — one with a deleveraged balance sheet and a more predictable book of business that is capital efficient.

During the second quarter, Tenet’s transformation story shifted from retiring debt and selling hospitals toward buying facilities that align with the provider’s long-term strategic priorities.

Sutaria told analysts Tenet’s “top capital priority remains the expansion of low-cost, high-quality ambulatory surgical centers.” 

Tenet currently operates 520 ambulatory surgery centers and 24 surgical hospitals in 38 states.

The CEO said the company added 11 new orthopedic centers during the quarter, including three surgery centers through a partnership with Florida Orthopedic Institute that handle more than 15,000 cases per year. 

The system also has nearly 25 new centers in syndication stages or under construction, according to Sutaria, and Tenet’s integration of centers acquired last quarter remain “on track.”

Ambulatory services drove revenue for Tenet in the second quarter, bringing in 21.1% more net operating revenue compared to the same period a year ago. 

Tenet will still acquire new hospitals in growing markets. It plans to open a new hospital soon near San Antonio, a region Sutaria said is growing six times the national average.

Hospital services revenue declined 4.3%, primarily due to divestitures. However, the health system reported a 5.2% increase in same-store hospital admissions during the quarter, in part due to capacity management initiatives.

That’s a pace of volume growth that Sutaria doesn’t expect to see replicated in ambulatory services — where he’s targeting a 1% to 3% annual growth rate.

“The volumes can be lumpy,” Sutaria said. “But from a long-term perspective, it’s an incredibly consistent business. And I think the reason for that is the fundamental tailwind of demand of moving things into a lower cost setting in the better service environment.”

In a research note published Thursday, Jefferies analysts predicted Tenet could update its guidance again in the coming quarters, noting the health system was earning a reputation for having a “‘beat and raise’ track record.” 

While Tenet benefited this quarter from industrywide tailwinds — such as broad healthcare utilization strength and an ongoing shift to site-of-service care, which complements Tenet’s ASC heavy portfolio — Jefferies analysts said management decisions set up Tenet for similarly strong future quarters.

Tenet’s investment in new capabilities, including AI, facility upgrades and capacity expansions are “translating to incremental growth that we believe will continue over the next few quarters,” they concluded.