DaVita (DVA) Q4 Earnings Beat and Revenues Miss Estimates

Zacks Equity Research

DaVita Inc. DVA reported fourth-quarter 2018 adjusted earnings per share (EPS) of 90 cents, beating the Zacks Consensus Estimate by a penny. However, the figure declined 2.2% on a year-over-year basis.

Total revenues in the quarter improved 1.4% year over year to $2.82 billion, missing the Zacks Consensus Estimate of $2.99 billion.

Per management, DaVita incurred additional expenses in the fourth quarter which impacted results. These expenses include $30 million of advocacy costs in countering union policy efforts, including ballot initiatives.

Over the past year, the Zacks Rank #3 (Hold) stock has lost 22.6% compared with the industry’s 10.9% decline. The current level also compares unfavorably with the S&P 500 index’s increase of 1.9%.

In the quarter under review, DaVita’s adjusted operating income totaled $370 million, down 14% year over year.

2018 at a Glance

On a full-year basis, revenues totaled $11.40 billion, improving 4.9% year over year. The metric fell short of the Zacks Consensus Estimate by 1.5%.

EPS in 2018 was $3.57, beating the Zacks Consensus Estimate by a penny and improving 7.5% year over year.

DaVita reports through two main segments — Net dialysis and related lab patient service revenues and Other revenues.

Net dialysis and related lab patient revenues for the year totaled $10.66 billion (93.5% of net sales) and Other revenues grossed $744.5 million (6.5%).

DaVita Inc. Price, Consensus and EPS Surprise

 

DaVita Inc. Price, Consensus and EPS Surprise | DaVita Inc. Quote

Business Details

Net dialysis and related lab patient service revenues in the fourth quarter totaled $2.72 billion, up 10.2% on a year-over-year basis. Other revenues were $105.1 million, down a significant 66.7% year over year.

Per management, total U.S. dialysis treatments for the fourth quarter of 2018 were 7,552,412, or 95,119 treatments a day. This represents a per-day increase of 3.1% from the fourth quarter of 2017.

Moreover, the company provided dialysis services at 2,905 outpatient dialysis centers, of which 2,664 centers were located in the United States and 241 centers in nine countries outside of the United States.

U.S. dialysis and related lab services revenues grossed $2.63 billion, up 10% from the prior-year quarter. International dialysis patient service and other revenues totaled $124 million, up 30.5% year over year.

For investors’ notice, the company is on track to divest its major segment — DaVita Medical Group (DMG) — to Optum, a subsidiary of UnitedHealth Group Inc. Notably, the purchase price has been reduced to $4.3 billion from $4.9 billion. This transaction is subject to regulatory approvals and other customary closing conditions. The operations of DMG business have been reported as discontinued.

Resultantly, the company incurred an additional charge of $252 million on the DMG business and a $42-million goodwill impairment charge.

Financial Condition

DaVita exited the fourth quarter with operating cash flow of $307 million and free cash flow of $112 million.

Guidance

For 2019, DaVita expects operating income in the band of $1.54 billion to $1.64 billion.

Operating cash flow for the year is projected between $1.38 billion and 1.58 billion.

Effective income tax rate on income from continuing operations attributable to the company is projected between 28.5% and 29.5% for 2019.

Our Take

DaVita ended the fourth quarter on a mixed note. While earnings edged past the consensus mark, revenues missed the same. Dialysis services in the United States saw a solid quarter. DaVita’s international dialysis revenues rose year over year in the quarter. The company is on track to acquire an increasing number of dialysis centers in the United States. Additionally, a win against the union-backed ballot in California in recent times is indicative of brighter prospects.

On the flip side, DaVita incurred some advocacy costs in the quarter, which negatively impacted results. Adoption of executive retirement policy in recent times also led to additional expenses for the company. Sluggishness in Other business has been another headwind. Incurring of additional costs on the DMG business in the fourth quarter are other deterrents.

Earnings of MedTech Majors at a Glance

Some better-ranked MedTech stocks that posted solid quarterly results are Varian Medical Systems VAR, AngioDynamics ANGO and CONMED Corporation CNMD.

Varian reported fiscal first-quarter adjusted EPS of $1.06, in line with the Zacks Consensus Estimate. Revenues of $741 million outpaced the consensus mark of $717.9 million. The stock has a Zacks Rank #2 (Buy).

AngioDynamics’ fiscal second-quarter adjusted EPS of 22 cents exceeded the Zacks Consensus Estimate by a penny. Revenues totaled $91.5 million, which surpassed the consensus estimate by 2.9%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CONMED delivered fourth-quarter adjusted EPS of 73 cents, in line with the Zacks Consensus Estimate. Revenues of $242.4 million beat the Zacks Consensus Estimate of $229.2 million. The stock carries a Zacks Rank of 2.

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