With its immune system weakened and no miracle cure in sight, Health Management Associates ( HMA) has finally decided to stop gobbling up other hospitals and tend to the ones it has. The rural hospital chain on Monday
lowered its expectations for the current year and signaled that acquisitions, once a source of explosive growth, will lend no help to the company right now. The company has instead laid out plans to scale back acquisitions -- and "reinforce its priority of optimizing the performance of its existing hospitals" -- as weak volumes and rising bad-debt expense continue to eat away at its industry-leading margins. CRT Capital analyst Sheryl Skolnick suggested that HMA consider that very change during the company's latest earnings call back in January. "They brushed me off," recalls Skolnick, who has no rating on the company's stock. And "what we have now is very typical for HMA. They only recognize the obvious when it becomes so overwhelmingly the reality of the market that they can't ignore it anymore." Faced with ongoing industry pressures, HMA on Monday issued new 2006 earnings guidance of between $1.43 and $1.49 a share. HMA's recent shift to a new fiscal year somewhat muddies comparisons to the company's prior outlook -- which called for earnings of $1.51 to $1.56 a share -- but the new forecast clearly falls short of recent management promises. Unlike some other hospital operators, HMA previously insisted on maintaining its 2006 outlook in spite of a weak December quarter. When needled by analysts about that decision earlier this year, the company mentioned a January rebound in business. But HMA has now lowered its guidance by roughly 6.5% just two months down the road. "That's a fairly significant reduction," Skolnick notes. "It takes away all of the potential growth for this year."
Regardless, HMA's stock held up rather well on Monday. The shares slipped just 7 cents to $21.14 in heavy morning trading.
"We've been in a tough cycle for going on three years now, relative to bad debt and volumes," Ransom pointed out during the company's latest earnings call. "I just wonder what your pain threshold is as a company before you start, you know, going to Plan B to do things that are different." Apparently, HMA still had some pain tolerance left at that time. The company continued to embrace its familiar business model while promising to better execute that plan going forward. Moreover, CFO Robert Farnham offered some reassurance about Wall Street expectations for the company -- but with two important caveats. "I think that, for us to make our consensus for the year, the volume has to be there," Farnham stated. And "I think, secondly, we have to make the acquisitions. They need to come on and do well for us." Instead, of course, HMA has now lowered its volume and acquisition targets for the current year. At the same time, it has found itself bracing for more bad debt from the uninsured. Skolnick simply sees a hospital company that it suffering along with all the rest. She also suggests that the company's stock, while trading near its 52-week low, has yet to reflect that reality. "This company is not invincible," she insists. "It is not above the fray. And it is not growing. But the stock is still trading at 15 times (earnings). So, yes, it is still invincible in that respect."