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Tenet Posts $230M Loss in Q4, Continues Hospital-Selling Spree

News  |  By Steven Porter  
   February 27, 2018

The major hospital operator plans to generate more than $1 billion in proceeds from divestitures.

Stock prices for Tenet Healthcare Corporation rose in after-hours trading Monday and were up more than 11% in mid-morning trading Tuesday, despite the Dallas-based company announcing a loss in 2017’s fourth quarter.

Tenet reported a net loss of $230 million, or $2.28 per diluted share in the quarter, compared to a loss of $79 million, or $0.79 per diluted share, a year prior, according to numbers released shortly after the New York Stock Exchange’s closing bell Monday. But, after adjustments, it beat analyst expectations.

The company blamed a large chunk of the loss on the Tax Cuts and Jobs Act, which it says prompted a $252 million non-cash partial write-down on its deferred tax assets.

After adjusting for the tax law’s impact and other factors, Tenet said its adjusted net income from continuing operations was $143 million, or $1.40 per diluted share, during the quarter, up from $23 million, or $0.23 per diluted share, a year prior. That was 7.7% higher than the Zacks Consensus Estimate of $1.30. The performance was helped in part by higher patient admissions, as the Associated Press reported.

A slide presentation for investors published with Monday’s results indicated that Tenet executives would discuss more than $1 billion in divestitures during a conference call with investors Tuesday morning.

“We’ve been making solid progress, including completing the sale of our Philadelphia hospitals and signing a definitive agreement to sell Des Peres Hospital in St. Louis," Executive Chairman and CEO Ronald A. Rittenmeyer said during Tuesday's call. "In line with our expectations, we anticipate completing the sale of MacNeal [Hospital] in Chicago and the restructuring of our joint venture with Baylor in Dallas in March. ... We remain on track to achieve the $1 billion in proceeds outlined last year.”

The sale of the two hospitals in Philadelphia was completed last month, yielding $152.5 million in proceeds, according to the presentation. And the sale of MacNeal Hospital in Berwyn, Illinois, is expected to yield $270 million.

Tenet anticipates more than $300 million in additional divestitures this year, including sales of Des Peres Hospital; Weiss Memorial Hospital, Westlake Hospital, and West Suburban Medical Center in the Chicago market; nine facilities in the United Kingdom; Golden State Health Plan in California; and its minority interest in three Baylor Scott & White’s locations in Texas.

"We will continue to evaluate individual hospitals and markets based on total cost of ownership and make necessary adjustments dictated by our analysis," Rittenmeyer added. "Our growth and cost initiatives will be incorporated into these evaluations, and we will use hard facts and data as we continue evaluating all assets on a go-forward basis."

Tenet’s selling spree comes as the company has made plans to trim its costs by $250 million and reduce its workforce by 2,000 positions, or 2%, amid pressure from activist shareholders, as The Wall Street Journal reported last month.

In an investor presentation Tenet filed last week with the Securities and Exchange Commission, the company cited five recent actions it has taken to ensure that it’s on the right trajectory:

  1. New CEO hired: Rittenmeyer, who was named Tenet’s executive chairman last August and its CEO last October, comes “with extensive turnaround experience,” the presentation said, noting that Rittenmeyer led Millennium Health in 2016 and 2017 as its chairman and CEO after it emerged from Chapter 11 bankruptcy.
  2. $250 cost-reduction program: In addition to eliminating about 2,000 jobs, the program called for the elimination of a “regional management layer” in the hospital business.
  1. Possible sale of Conifer: The presentation described its decade-old Conifer Health Solutions as a “very valuable asset” that doesn’t make strategic sense for Tenet to own.
  2. Enhanced focus on quality of care: “Many of our hospital key indicators are better than the national average,” the presentation said, citing Tenet’s core measures, hospital safety grade from The Leapfrog Group, HCAHPS and CMS Overall Quality Scores, and readmissions rates.
  3. Divestitures of non-core hospitals: Tenet’s aggressive divestiture program expects to yield more than $1 billion in proceeds, and the company “continues to review its portfolio of businesses and assets,” suggesting more sales could be announced in the not-too-distant future.

Editor's note: This story has been updated to include additional information from Tuesday's investors call.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.

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