Tenet's ( THC) shaky health has taken a turn for the worse. A complete examination that was intended to evaluate Tenet's near- and long-term prospects has detected a slew of serious problems. As a result, Tenet is bracing for a slow and tedious recovery -- with no chance of even nearing Wall Street estimates in the interim. "Tenet is navigating through a very challenging transitional period," said Trevor Fetter, Tenet's president and interim CEO, on Monday. "We now believe this transitional period will continue through at least the first half of 2004, and its impact on our financial performance will be more substantial than previously mentioned." On the basis of a systemwide review of its hospitals -- and mounting pressures on the bottom line -- Tenet warned Monday that upcoming results will fall "significantly below" analysts' expectations. The second quarter looks particularly ugly. After taking a number of special charges -- including a sizable hit for severance payments to ousted CEO Jeffrey Barbakow -- Tenet mustered earnings of only 2 cents a share during the first two months of the current quarter. The company, which offered no hope for improvement in June, was originally expected to deliver second-quarter earnings of 34 cents a share. Now, Tenet expects to generate barely more than that -- as little as 40 cents a share -- over the next two quarters combined. The company believes that modest earnings pattern will continue, producing full-year earnings of 80 cents to $1 a share, for at least the next 12 months. It also warned that extraordinary charges -- from impairments, restructuring and litigation -- are likely to cut into financial results even further. Investors, who were looking for 2003 profits of $1.61 a share, took a knife to Tenet's stock. The shares lost 22%, or $3.63, after the regular session opened. At $12.60 a share, the stock is now trading at a new multiyear low.
With his usual determination, Fetter nevertheless pledged to help turn the company around. "We have made many changes at Tenet recently -- in management, in strategy and in policy," Fetter said. "We still have many challenges to address, but we have a strong, committed management team ready to take them head on."
Even looking forward, Tenet could muster little good news for investors. The company pointed to business volumes, helped by a "solid portfolio of hospitals," as its one area of strength. But the numbers themselves weren't terribly exciting. The company said it outperformed the industry with recent volume growth of under 2%. But it doesn't expect any real improvement as the year wears on. Overall, Tenet predicts that 2003 hospital admissions will hover just 2% over 2002 admissions and remain flat on a same-facility basis for the remainder of the year. Meanwhile, Tenet expects revenue to actually fall. The company projects that full-year revenue will slip by $300 million, to $13.6 billion in 2003. And the loss of outliers -- which is expected to cut revenue by $760 million -- is not the company's only problem. "Even after accounting for the reduction in outlier revenues, the trend in unit revenues is significantly lower than in recent periods," the company stated. "At the same time, despite an ongoing focus on cost reduction, cost pressures continue to build." Tenet is clearly sagging beneath that weight.
In the meantime, the company has pledged to cut business expenses by $250 million over the next 12 months. And it is depending on its strongest hospitals to carry it through the current downturn. "Some of Tenet's hospitals are unlikely to grow significantly, but can produce consistent results once operations are normalized," Fetter said. "Other Tenet hospitals are very well-positioned for growth. "Keeping our hospitals strong and continuously improving their quality and efficiency are the keys to our long-term success."
The California Nurses Association, which ranks as one of Tenet's most vocal critics, also hinted at tough times ahead for the company. Redding is "not the first Tenet hospital that's had problems -- and I don't believe it will be the last," said union spokesman Chuck Idelson. "New reports will come out in the not-too-distant future. ... It certainly looks like the walls are closing in on Tenet."