Shares off more than 10% in morning trade

Shares in Community Health Systems opened sharply lower after the hospital operator announced another quarter of disappointing results and its executives vowed to sell assets to pay down the company’s hefty debt.

Franklin, Tenn.-based Community Health reported a 86% drop in first-quarter profit after markets closed on Monday. Shares were off more than 10% midmorning.

Community Health posted earnings of $11 million, or 10 cents a share, down from $79 million, or 68 cents a share a year ago. Revenue rose slightly to $5 billion from $4.9 billion.

Analysts were expecting earnings of 74 cents share, according to those surveyed by Thomson Reuters. It was the third straight quarter that earnings fell short of Wall Street expectations.

The company said it would divest a Nevada hospital joint venture and sell another 10 hospitals, among other assets, to raise cash. Combined with the spinoff last week of 38 rural Community Health Systems hospitals, the announced divestitures would reduce the system’s hospital count by more than one-fifth since the end of last year.

Most of the $1.2 billion from the spinoff will be used to pay down debt, the company said. The sale of the four-hospital Nevada joint venture to Universal Health Services will bring Community Health Systems another $445 million.

“As we refine our portfolio into what we anticipate will be a more sustainable, higher-margin group of hospitals, our resources and future investments can be targeted into markets where we have the greatest opportunity to achieve performance improvement in our operations and financial results,” Community Health Systems Chief Executive Officer Wayne Smith said in a news release ahead of a call with analysts.

Community Health Systems’ eagerness to slim down comes roughly two years after its $7.3 billion acquisition of 71-hospital Health Management Associates, a deal that created a U.S. hospital giant with uneven performance and a string of poor quarterly financial results.

Former Health Management Associates hospitals continued to deliver losses in the first quarter, including eight hospitals in Florida and two in Tennessee that reduced earnings before interest, taxes, depreciation and amortization by a combined $40 million, according to analysts with Avondale Partners and Susquehanna Financial Group.

After an $83 million loss in the fourth quarter, Community Health Systems’ management said they struggled to increase patient volume and turnaround Health Management Associates, which suffered from management turnover and limited investment in physician recruitment ahead of the 2014 acquisition. That loss followed unexpectedly weak earnings in the third quarter that sent Community Health Systems’ shares tumbling last October.

Community Health Systems’ reported a drop in admissions of 2.6% in the first quarter compared with the same period the prior year and 2% on a same-hospital basis. A measure of volume that combines admissions and outpatient care, or adjusted admissions, increased during the quarter by 0.7% and by 1.3% on a same-hospital basis.

Original Post -- http://www.wsj.com/articles/community-health-systems-to-sell-assets-to-pay-down-hefty-debt