Profit numbers mixed for Las Vegas hospital operators

Monday, Oct. 21, 2002 | 11:06 a.m.

SUN STAFF AND WIRE REPORTS

HCA Inc.'s third-quarter profit dropped 27 percent because the biggest U.S. hospital chain wrote down the value of some investments.

Net income fell to $200 million, or 38 cents a share, from $273 million, or 51 cents, a year earlier, the company said in a statement today. Excluding investment losses in an insurance unit, profit beat analysts' estimates. Revenue rose 11 percent to $4.9 billion from $4.4 billion on higher prices for managed-care insurers.

HCA has raised prices about 6 percent to 8 percent in managed-care contracts by attracting more patients in growing cities such as Denver, Las Vegas and San Antonio. In Las Vegas, HCA owns Sunrise and MountainView hospitals and is building a third hospital in the valley.

HCA, like other hospital chains, also is investing in medical specialties such as cardiology that will be in demand as Americans age.

"People are going to continue to be surprised at the underlying earnings power of this hospital group," said Stephens Inc. analyst Nancy Weaver, who has an "overweight" on HCA and doesn't own the shares. "There's a shortage of beds, the population is aging and government reimbursement is increasing."

Shares of the Nashville, Tenn.-based company fell 66 cents to $50 as of 10:30 a.m. in New York Stock Exchange composite trading today. The shares have risen 30 percent this year, compared with a 15 percent increase in the Standard and Poor's 500 Health Care Facilities Index.

HCA forecast 20 percent to 25 percent per-share earnings growth in the fourth quarter.

HCA took a charge of $107 million, or 20 cents a share, for a decline in the value of securities held by its insurance unit, which has $1.6 billion in investments. Declines in technology and communications stocks were deemed to be more than temporary, the company said, leading to the writedown.

Profit would have been $319 million, or 60 cents a share, without those expenses. On that basis, analysts surveyed by Thomson First Call expected the company to earn 55 cents a share.

Weaver said HCA owns the insurance unit as part of a strategy to help the company control malpractice insurance costs.

Admissions to hospitals HCA owned at least a year rose 3.4 percent in the quarter, led by a 5.4 percent increase in emergency- room visits.

Revenue per admission rose 8.6 percent for those hospitals, an indication that HCA raised prices.

HCA last week agreed to buy 14-hospital Health Midwest of Kansas City, Mo., for $1.13 billion, its biggest purchase since a 1997 health-care fraud investigation by the U.S. government.

The Health Midwest deal will trim about 2 cents to 3 cents a share from earnings for the first few years after the purchase is completed, HCA Chief Executive Officer Jack Bovender said on a conference call.

HCA, formerly known as Columbia/HCA Healthcare Corp., has paid $840 million in fines and penalties to settle most of the case, which alleged that the company routinely defrauded Medicare and other programs. The company hasn't settled claims that it paid kickbacks to doctors and overbilled Medicare on annual reports.

Investors said HCA, which outbid rival Tenet Healthcare Corp. for Health Midwest, wanted to show competitors it is back in the acquisition hunt after selling or spinning off more than 100 hospitals in the wake of the investigation.

"I think the earnings numbers explain why they did Health Midwest," Weaver said. "The base business is doing well, so they can afford to look a little longer term."

During the quarter, the company bought back 6.2 million of its shares for $282 million.

Valley Health System

Universal Health Services, operator of the Valley Health System in Las Vegas, today reported a third-quarter profit of $41.5 million or 65 cents per share, up 35 percent on a per-share basis from the year-ago quarter.

Revenue advanced 13 percent to $813 million.

Universal is based in King of Prussia, Pa. In Las Vegas, its Valley health system consists of Valley, Desert Springs and Summerlin hospitals. The company is building a fourth hospital in the market to compete with the valley's other hospital operators: HCA, Catholic Healthcare West, Tenet and Clark County's University Medical Center.

Sun Microsystems

Struggling with an increasingly uncertain and bleak corporate economy, Sun Microsystems said it would lay off 11 percent of its employees and reported a loss for its first quarter, but exceeded Wall Street's earnings expectations.

Through 2001, Sun, a computer company, was one of the biggest beneficiaries of both the dot-com boom and the telecommunications and Internet industry expansions. Now the company is trying to navigate an increasingly challenging technology recession, as corporate capital spending declines and competitors offering the Windows and Linux operating systems on their computers challenge Sun.

Sun said that it plans to cut 4,400 employees at sites around the world, beginning in November.

Sun's revenues for the first quarter of its 2003 fiscal year were $2.7 billion, down 4 percent compared with $2.9 billion for the first quarter of 2002.

The company's net loss for the first quarter was $111 million, or 4 cents a share, compared with a net loss of $180 million, or 6 cents a share, for the year-earlier period.

Philip Morris

Philip Morris Cos. reported that third-quarter earnings increased, largely on the strength of sales in foreign markets. But domestic business continued to show signs of weakness as cigarette taxes rose in more than a dozen states and the proliferation of cheaper brands hurt sales of higher-priced products like Marlboro.

The company said it would stand by its projections of earnings-per-share growth of 3 to 5 percent for 2002, and predicted earnings would increase by 8 to 10 percent in 2003.

Net income in the quarter rose to $4.36 billion, or $2.06 a share, an increase of 87 percent from income of $2.33 billion, or $1.06 a share, a year earlier. The latest results included a gain of about $1.7 billion from the sale of the Miller Brewing Com.

Excluding that gain and other special items, Philip Morris posted earnings of $2.7 billion, or $1.26 a share, up just over 5 percent from $2.57 billion, or $1.16 a share, in the period a year earlier.

Revenue decreased 1.7 percent, to $19.9 billion, from $20.25 billion.

Household International

Household International Inc., the nation's second-largest consumer finance company, reported a 54 percent drop in third-quarter net income, hurt by a charge for a legal settlement and higher loan-delinquency rates.

The Prospect Heights, Ill., company reported net income of $221.2 million, or 45 cents a share, down from earnings a year ago of $485.6 million, or $1.03 a share.

Excluding a charge of $333 million for a legal settlement, Household said it would have earned $554.4 million, or $1.17 a share, a penny a share above the mean estimate of analysts surveyed by Thomson First Call.

Household earlier this month announced a settlement with dozens of state regulators and attorneys general who alleged the company deceived borrowers about the true cost of loans. As part of that settlement, Household agreed to pay as much as $484 million to aggrieved customers.

In the third quarter, Household's revenue rose 25 percent from a year ago to $678 million, including loans sold to investors as securities.

The company said it wrote off 4.39 percent of loans in the third quarter, compared with 4.26 percent in the second quarter. It wrote off 4.43 percent of loans in the 2001 third quarter.

J&J

Health care giant Johnson & Johnson posted a 19 percent increase in third-quarter profits on sharply higher sales of pharmaceutical products and medical devices.

The maker of contact lenses, contraceptives and baby products said that net income for the quarter ended Sept. 30 jumped to $1.82 billion, or 60 cents per share. That beat by a penny the consensus forecast of analysts surveyed by Thomson First Call.

A year earlier, net income was $1.53 billion, or 49 cents per share.

Sales reached $9.08 billion, up nearly 13 percent from $8.06 billion a year earlier.

Honeywell

Honeywell International posted a modest third-quarter profit as stringent cost-cutting offset lower revenues at the maker of high-tech aerospace and automotive products. The company rebounded from a loss a year earlier, when it recorded charges of $1.01 billion, but predicted more layoffs.

Honeywell, which also makes control systems for buildings and industry, said it had net income of $412 million, or 50 cents per share, in the quarter ended Sept. 30.

That matched the consensus forecast of analysts surveyed by Thomson First Call. However, that forecast was revised downward from 61 cents per share after Honeywell executives on Sept. 12 warned that sales and profits would be lower than expected because key industries such as commercial airlines and nonresidential construction are in deep slumps.

"It's just really clear that commercial and industrial customers are holding back on their ... spending," Honeywell Chief Executive David Cote told analysts during a morning conference call.

In 2001's third quarter, the Morris Township-based company reported a net loss of $308 million, or 38 cents per share. Excluding the $1.01 billion in one-time charges, net income in the year-earlier period was $360 million, or 44 cents per share.

Northrop Grumman

Defense giant Northrop Grumman Corp. reported a $59 million loss for the third quarter due to charges for increased costs in two contracts and losses on the sale of two businesses.

The nation's third biggest defense contractor said the charges would result in lower than expected earnings for the full year. Its shares sank.

The company reported a net loss of $59 million, or 56 cents per share, for the quarter ended Sept. 30, compared to a net profit of $79 million, or 84 cents a share, for the same quarter last year.

Revenue rose 24 percent to $4.2 billion from $3.4 billion a year ago.

Merck

Merck & Co. posted a 3 percent decline in third-quarter profit, as sharply higher costs for materials and production, as well as more research and development spending, offset solidly higher sales.

The maker of the cholesterol drug Zocor and Pepcid for ulcers said today that third-quarter net income totaled $1.88 million, or 83 cents per share, down from $1.95 billion, or 84 cents a share, a year earlier,

The latest results matched the consensus forecast of analysts surveyed by Thomson First Call.

Revenues were up 8 percent to $12.89 billion from $11.92 billion a year earlier.

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