CHS emerges from divestiture program with stronger bottom line in 2020

Community Health Systems in 2020 wrapped up its multi-year effort to sell underperforming hospitals, an undertaking that significantly trimmed its portfolio and appears to have bolstered its bottom line.

Investor-owned CHS posted $511 million in net income to shareholders in a year where admissions were dampened by a devastating global pandemic, a major swing from its $675 million net loss in 2019. Like most of its peers, CHS’ performance got a major boost from federal stimulus grants, of which it recognized about $600 million during the year. The company’s earnings—expressed as adjusted earnings before interest, taxes, depreciation and amortization—were $1.8 billion in 2020, up 11% year-over-year.

Franklin, Tenn.-based CHS has for years worked to shed weak links in its hospital portfolio. The company divested 13 underperforming hospitals in 2020 and wrapped up its formal divestiture program at the end of the year. CHS had 89 hospitals as of Dec. 31, 2020, fewer than half of its total at the end of 2014.

“Our portfolio of hospitals is now primarily concentrated in Sunbelt states with attractive demographics, higher population growth and economic opportunities,” Tim Hingtgen, CHS’ new CEO as of this year, said on Thursday’s earnings call. “Our stronger portfolio, coupled with high-return investments, positions the company for growth going forward.”

CHS netted about $1.5 billion in proceeds from the sales, putting the company ahead of its $1.3 billion goal, Chief Financial Officer Kevin Hammons told Modern Healthcare in November.

Procedure shutdowns stemming from the COVID-19 pandemic put a dent in CHS’ volumes last year. Same-store admissions were down 8% year-over-year. CHS’ 2020 operating revenue of $11.8 billion was down 10.8% year-over-year, due in part to having fewer hospitals. That fell below even the low end of estimates from Zacks Investment Research. The company’s third-quarter revenue of $3.1 billion—down 5% from the prior-year period—was above Zacks’ estimate.

In 2021, Hingtgen said CHS is focused on growing its volumes by adding new surgical lines and beds. The company is also adding three more freestanding emergency departments and three ambulatory surgery centers this year, he said.

CHS’ expenses came out to $10.7 billion in 2020, a 15% decline over 2019. Expenses were down 14% in the fourth quarter to $2.7 billion.

In 2021, CHS projects generating between $11.7 billion and $12.5 billion in revenue and between $1.6 billion and $1.8 billion in adjusted EBITDA. The company’s share value was down roughly 9% midday on Thursday, possibly because its guidance doesn’t include an earnings improvement.

Hammons said on Thursday’s call that CHS expects its strategic initiatives will spur greater cost savings and earnings growth in the second half of this year.

“We expect the cadence of EBITDA to increase sequentially during the year, with the fourth quarter being our strongest EBITDA quarter of the year,” he said.


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