UPDATE 3-Community Health posts net loss on acquisition costs

Tue May 6, 2014 8:13pm EDT

(Adds analyst comments)

By Susan Kelly

May 6 (Reuters) - Hospital operator Community Health Systems Inc reported a first-quarter net loss on Tuesday, reflecting the costs of acquiring smaller rival Health Management Associates.

Community Health, the second-largest U.S. for-profit hospital operator, also narrowed its forecast for full-year earnings at the lower end of its prior range.

Harsh winter weather in key markets and a milder flu season dragged on first-quarter results, but implementation of the Affordable Care Act is starting to have a positive impact on operations, Community Health Chief Executive Officer Wayne Smith said.

CRT Capital Research analyst Sheryl Skolnick expressed disappointment at the results, noting that revenue came in below Wall Street expectations and patient admissions were the weakest in the for-profit hospital sector.

Community Health faces a challenge in turning around some of Health Management's struggling hospitals, Skolnick said.

"We are really worried here that (Community Health) has bitten off far more risk than it can handle," Skolnick wrote in a note to clients.

Community Health, which completed its acquisition of Health Management Associates in January, posted a first-quarter loss of $112 million, or $1.04 a share, compared with net income of $79 million, or 86 cents a share, a year ago.

Excluding one-time items, the Franklin, Tennessee-based company said it earned 27 cents a share from continuing operations in the quarter. Net operating revenue rose 28 percent, to $4.2 billion.

On that basis, analysts were expecting a profit of 19 cents a share, on revenue of $4.31 billion, according to Thomson Reuters I/B/E/S.

But at hospitals it has operated for at least one year, net operating revenue declined 4 percent from a year ago as patient admissions decreased 8.1 percent.

Community Health said it now expects full-year earnings from continuing operations of $2.70 to $3.20 a share. In February the company forecast 2014 earnings in a range of $2.70 to $3.75 a share.

Most hospital companies in the first quarter have reported early signs that President Barack Obama's healthcare law is bringing more insured patients through their doors, but said it is too early to draw conclusions about the overall impact.

No. 3 hospital chain Tenet Healthcare Corp said on Tuesday the number of newly insured patients it has treated ramped up in February through April.

Community Health shares closed 1.1 percent lower at $39.42 Tuesday on the New York Stock Exchange. (Reporting by Susan Kelly in Chicago; Editing by Bernard Orr, Andre Grenon and Prudence Crowther)