Dialysis company DaVita’s stock suffered the worst day in 22 years after a big shortfall and a disappointing outlook

By Tomi Kilgore

Stocks follow S&P 500 declines, head for lowest close since April 2020

Shares of DaVita Inc. fell in active trading on Friday, to suffer their worst performance in more than two decades, after the dialysis company reported a third quarter that fell well short of expectations and cut its full-year outlook. , citing falling salaries and rising labor costs. .

The (DVA) stock plunged 27.1% to $70.54, the lowest close since April 3, 2020. Trading volume swelled to around 5.4 million shares, compared to the full-day average over the past 30 days of approximately 629,500 shares.

It was the stock’s biggest one-day selloff since its 32.2% plunge on January 19, 2000.

“The third quarter was a difficult quarter for us. As with others in the healthcare community, negative volume trends due to COVID and continued labor pressure impacted our financial performance more than expected,” said the director. General Javier Rodríguez.

The company reported net income that fell to $105.4 million, or $1.13 per share, from $259.8 million, or $2.36 per share, in the same period a year. Excluding one-time items, adjusted earnings per share fell from $2.35 to $1.45, missing the FactSet consensus of $1.77.

Revenue rose 0.4% to $2.95 billion, while operating revenue of $2.70 billion was below expectations of $2.98 billion, according to FactSet.

The total number of dialysis treatments in the United States was 7.34 million, or an average of 92,859 per day, compared to 7.47 million, or 94,509 per day last year, and a decrease of 0.4 % over the second sequential quarter. Revenue per treatment increased 2.0% to $360.54, while patient care costs per treatment increased 5.7% to $242.09.

For 2022, the company reduced its guidance range for Adjusted EPS to $6.20 to $6.70 from $7.50 to $8.50.

“We anticipated that lower volumes due to COVID and labor market pressures would impact our revenue growth and margins in 2022, but we expected relief from both dimensions in 2023,” said Rodriguez during the post-earnings conference call with analysts, according to a FactSet transcript. “We now assume that these challenges will persist longer than expected, which explains the change in our forecast.

DaVita’s stock has fallen 38.0% since the start of the year, while the exchange-traded fund SPDR Health Care Select Sector (XLV) has fallen 5.7% and the S&P 500 has fallen 18 .2%.

Reasons for volume declines, labor pressure

During the post-earnings conference call, CEO Rodriguez said there were three main reasons for the drop in volume:

1. Census growth before excess mortality — “[W]We’ve seen a drop in patient admissions with each COVID surge…followed by a rebound after each surge,” Rodriguez said.

After admissions fell earlier in the year due to the surge in the omicron variant of the COVID-19 virus, a rebound in the second half was expected. “We didn’t see the expected rebound in the third quarter and assume continued pressure on admissions into the fourth quarter and into 2023,” Rodriguez said.

2. Missed Treatments – After the omicron surge caused missed treatment rates, the rates increased. “We had expected those increases to return to seasonal norms after the winter surge, and they didn’t,” Rodriguez said. “As a result, we now assume that these will remain elevated through the end of this year into 2023.”

3. Excess Mortality — COVID death rates in 2022 are down from previous years. “Excess mortality remains a challenge for us,” Rodriguez said. “We expect it to persist into the fourth quarter and into 2023. The magnitude of the impact will depend on the size and severity of COVID surges this winter and through the rest of 2023.”

In addition to volume issues, the company has experienced “extremely significant wage pressure” this year, with a forecast headwind in 2022 of around $100 million to $125 million.

And the company expected contract labor costs to remain high in the third quarter, but at lower levels in the second quarter. But in fact, Q3 costs have increased from Q2, and any declines are now expected to occur later and be lower than originally forecast.

For 2023, the company expects headwinds from labor pressure and inflation of $300 million to $250 million.

-Tomi Kilgore


(END) Dow Jones Newswire

10-30-22 1643ET

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