Universal Health Cuts Guidance

Admissions suffer in several key markets.
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Universal Health Services (UHS) - Get Report expects full-year earnings from continuing operations will be below its prior guidance due to struggles with fourth-quarter admissions in certain key markets.

The hospital operator said earnings for the year ending Dec. 31 are likely to fall short of its previous estimate of $2.75 to $2.85 a share. Earnings for the 11 months ended Nov. 30, 2004, were $2.48 a share.

Analysts, on average, had been expecting the company to earn $2.82 a share in 2004.

On a same-facility basis, fourth-quarter admissions to the company's acute care hospitals in the U.S. and Puerto Rico are expected to remain relatively flat compared with last year's fourth quarter. Universal Health's provision for doubtful accounts, while substantially higher than the prior year, should remain relatively consistent as a percentage of revenue with previously reported 2004 results.

However, admissions in the McAllen, Texas, market are expected to be down significantly in the fourth quarter, contributing to a substantial decline in the profitability contribution of this market. Additional capacity at a physician-owned hospital in the McAllen market opened within the past week, which may further erode some of our hospital's existing business.

Lakewood Ranch Hospital, which opened in Florida in September, continues to experience operating losses in the fourth quarter. It also has diverted some volume and hurt the profitability of Manatee Memorial Hospital, its sister hospital. Methodist Hospital in East New Orleans, acquired early in 2004, also continues to experience operating losses in part due to an increasing burden of nonpaying patients.

The continued softness in admissions to the company's acute-care facilities will generally result in an operating margin contraction during the fourth quarter, as it becomes increasingly "challenging" for Universal Health to cut costs (a large portion of which are fixed in nature) quickly enough to match the volume declines experienced in certain markets, the company said.