Kindred Healthcare (KND) Tops Q2 EPS by 6c, Beats on Revenues; Updates FY17 & FY18 Outlook

Kindred Healthcare (NYSE: KND) reported Q2 EPS of $0.19, $0.06 better than the analyst estimate of $0.13. Revenue for the quarter came in at $1.53 billion versus the consensus estimate of $1.48 billion.

• Consolidated Revenues of $1.53 Billion, GAAP Loss from Continuing Operations of $108 Million(1), GAAP Diluted Loss Per Share from Continuing Operations of $1.36(1) and EBITDAR of $36 Million(2) in the Second Quarter
• Results Reflect After-Tax Costs of $136 Million Primarily Related to Non-Cash Impairments of $82 Million and a Non-Cash Deferred Tax Asset Valuation Allowance of $37 Million
• Core EBITDAR of $198 Million(3) and Core Diluted EPS from Continuing Operations of $0.19(3) in the Second Quarter
• Second Quarter GAAP Operating Cash Flows and Core Operating Cash Flows of $93 Million(3) and Core Free Cash Flows of $62 Million(3)
• Company Updates Outlook for 2017 and 2018

GUIDANCE:

Kindred Healthcare sees FY2018 EPS of $0.80, versus the consensus of $0.79.

2017 and 2018 Outlook(1)(Continued):

Stephen D. Farber, Executive Vice President and Chief Financial Officer of Kindred, commented, “As a reminder, when the Company established its 2017 Outlook, it included a midpoint expectation for 2017 Core EBITDAR of $930 million, with a range of $910 million to $950 million. As discussed above, the Company is now reflecting its skilled nursing facility business in discontinued operations. For consistency, this change would require that the Company’s previous 2017 Core EBITDAR Outlook be adjusted by approximately $140 million(2).”

Mr. Farber noted, “There are additional factors that should be considered with updating expectations for our 2017 performance. For example, we expect roughly $30 million of benefit, on a full-year basis, from various cost reduction efforts and anticipated new RehabCare contracts signed in connection with the sale of the skilled nursing facility business. We expect the full amount of these items to benefit 2018, but the impact on 2017 is completely dependent on the timing of multiple transaction closings, which are uncertain but expected to occur in phases over the remainder of 2017. Also as discussed above, we are closing five additional LTAC hospitals, including the conversion of an LTAC hospital to an IRF, each of which has uncertain timing, lease termination, wind-down and other costs. These and other items will have both positive and negative impacts on Kindred’s reported results for the balance of 2017.”

Mr. Farber continued, “For the second half of 2017, we expect our third quarter to follow normal seasonal trends, making it the softest quarter of the year. Due to ongoing and widely reported inpatient volume trends, as well as continued labor pressure in our Hospital Division, the Company is expecting to finish the year towards the lower end of its previous outlook range.”

Mr. Farber concluded, “Given the complexity and uncertain timing of these items over the next several months, it is not practical to update our 2017 Outlook and we are limiting our commentary for the balance of 2017 to the items discussed above. As such, we are focusing on updating and expanding our outlook for 2018. The items identified above should be largely complete and incorporated on a run-rate basis in Kindred’s results by the end of 2017, and estimates for these items are reflected in the Company’s 2018 Outlookbelow.”

For the 2018 Outlook, Kindred anticipates:

• Annual revenues at the midpoint of approximately $6.2 billion;
• Core EBITDAR at the midpoint of approximately $830 million; and
• Core diluted EPS from continuing operations at the midpoint of approximately $0.80.

In determining these items, Kindred utilized the following 2018 estimates:

• Total rent expense of approximately $300 million;
• Depreciation and amortization expense of approximately $100 million;
• Interest expense of approximately $245 million, including $17 million of amortization of deferred financing fees;
• Noncontrolling interest expense of approximately $45 million to $50 million;
• An effective book tax rate of approximately 34%;
• Weighted average shares outstanding of approximately 90.0 million; and
• Routine capital expenditures of approximately $60 million.

Please note:

• Annual revenues have been adjusted from approximately $6.3 billion in the previous 2018 Outlook to $6.2 billion in the current 2018 Outlook primarily to reflect the impact of recent and anticipated LTAC hospital closures and consolidations;
• Core EBITDAR has been adjusted from $840 million in the previous 2018 Outlook to $830 million in the current 2018 Outlook to reflect recent and anticipated LTAC hospital closures and consolidations. Since these hospitals have similar levels of Core EBITDAR and lease expense, the simultaneous elimination of Core EBITDAR and lease expense are expected to have an immaterial impact on Core earnings before income taxes, depreciation and amortization, and Core diluted EPS from continuing operations; and

(1)

See Forward-Looking Statements beginning on page 14.
Reflects the impact of Core EBITDAR of the skilled nursing facility business reclassified to discontinued operations, its direct overhead, as well as the profits from applicable RehabCare contracts servicing the skilled nursing facilities being sold.

2017 and 2018 Outlook(1)(Continued):

• Core EBITDAR includes an estimated $30 million contribution, as noted above, from forecasted cost savings and new RehabCare contract signings anticipated in connection with the sale of the Company’s skilled nursing facility business.

For earnings history and earnings-related data on Kindred Healthcare (KND) click here.

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