Given the tough hospital environment and weak results from competitors, Universal Health Services' ( UHS) second-quarter performance looks almost otherworldly. The company's unique portfolio of behavioral health facilities isn't the only reason, either. This time, the company's acute-care hospitals posted solid growth as well. As a result, the company blew past Wall Street estimates for the latest period. Its stock, in turn, jumped 5.1% to $54.43 on Friday. During the recent quarter, Universal saw revenue climb 6% to $1.05 billion, topping the consensus estimate of $1.02 billion. Net income slid 62% to $60.3 million due to the absence of year-ago gains. However, earnings per share of 78 cents beat Wall Street expectations by a full 13 cents. For Universal, at least, everything seemed to go right. While competitors weathered volume declines at their own facilities, Universal reported a 1.3% rise in acute-care admissions during the latest period. The company also enjoyed strong pricing and managed to keep its costs under control, leading to margin expansion. Thus, Universal didn't have to lean on its behavioral health division as much as usual -- which was probably best. Though still positive, results from that unit have been stronger in the past. There, inpatient admission rose 1.7% -- and patient days inched up less than 1%. Still, prices in that division remained very strong as well. JPMorgan analyst Andreas Dirnagl called the quarter "solid on virtually every front." However, he maintained his neutral rating on the stock because he views it as fairly valued in light of recent earnings volatility and ongoing industry challenges. His firm has investment banking ties to the company. All in all, Dirnagl seemed a bit puzzled by the company's results in the end. "Expect stock reaction to be positive," he wrote in a research note for clients. "Our question, however, is where did UHS find so many perfect patients -- short-stay, high-pay, low-resource utilizing?"
Still, investors had to wade through a slew of special items just to figure that out. "Maybe one of these days LifePoint will report a quarter without one-time items, add-backs, take-offs and other adjustments that necessitate a degree in logic and mathematics in order to understand what the company earned and what the relevant key metrics were in the quarter," wrote Sheryl Skolnick, senior vice president of CRT Capital Group. "Yesterday wasn't that day, though." Thus, Skolnick dug for the major issues on her own. She started with volumes, noting a decline in not only flu-related admissions, but also -- and more importantly -- lucrative surgeries as well. With volumes now down two quarters in a row, she questions how the company can possibly keep its promise to grow volumes for the full year. "Quite frankly, we just don't think that LifePoint (or any of the other major hospitals) can generate better than flat volumes in this environment, or maybe up 1%, at best, vs. an easy comparison," wrote Skolnick, who has a fair value rating on LifePoint's stock. "If management is going to stick to its guidance of up 1% for same-store admissions for 2006, then it had best build a very sturdy bridge that gets us from down 4.1% for 1H06 to up 1% for the year. We can't get there from here." Neither, it seems, could investors. They pushed shares of LifePoint down 4% to $32.90 on Friday.