Hospital operator Tenet Healthcare (NYSE:THC) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 2.7% year on year to $5.22 billion. The company expects the full year’s revenue to be around $20.8 billion, close to analysts’ estimates. Its non-GAAP profit of $4.36 per share was 39.2% above analysts’ consensus estimates.
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Tenet Healthcare (THC) Q1 CY2025 Highlights:
- Revenue: $5.22 billion vs analyst estimates of $5.15 billion (2.7% year-on-year decline, 1.3% beat)
- Adjusted EPS: $4.36 vs analyst estimates of $3.13 (39.2% beat)
- Adjusted EBITDA: $1.16 billion vs analyst estimates of $995.3 million (22.3% margin, 16.9% beat)
- The company reconfirmed its revenue guidance for the full year of $20.8 billion at the midpoint
- Management raised its full-year Adjusted EPS guidance to $12.56 at the midpoint, a 2.2% increase
- EBITDA guidance for the full year is $4.08 billion at the midpoint, in line with analyst expectations
- Operating Margin: 18.1%, down from 61.2% in the same quarter last year
- Free Cash Flow Margin: 12.3%, up from 6.4% in the same quarter last year
- Same-Store Sales rose 2.9% year on year (1.8% in the same quarter last year)
- Market Capitalization: $14.36 billion
StockStory’s Take
Tenet Healthcare began 2025 with results that surpassed Wall Street’s expectations for revenue and non-GAAP earnings per share. Management attributed this outperformance to continued growth in its ambulatory surgery business (USPI), effective cost controls, and a favorable mix of higher-acuity cases, particularly in its hospital segment. CEO Saumya Sutaria highlighted that disciplined expense management and capacity expansion enabled the company to handle increased patient demand without a corresponding spike in contract labor costs.
Looking ahead, management reaffirmed its full-year revenue guidance and raised projected non-GAAP earnings per share, expressing confidence in sustained demand and the company’s growth initiatives. CFO Sun Park noted that priorities remain focused on expanding higher-acuity services, disciplined capital deployment, and margin improvement, while monitoring policy uncertainties affecting healthcare reimbursement. The company expects to remain active in capital allocation, emphasizing acquisitions in ambulatory care and ongoing share repurchases.
Key Insights from Management’s Remarks
Tenet Healthcare’s senior leaders emphasized that operational discipline and targeted growth initiatives were the main contributors to the quarter’s performance. The company’s strategic priorities centered on expanding outpatient care, optimizing labor costs, and focusing investments on higher-acuity services.
- Ambulatory growth focus: Management reported robust performance from United Surgical Partners International (USPI), with a 6.8% increase in same-facility revenues and a 12% rise in total joint replacements. CEO Saumya Sutaria cited the ongoing shift to higher-acuity procedures in ambulatory settings as a key driver.
- Hospital segment efficiency: Hospital operations benefited from an improved payer mix and higher patient acuity, resulting in a 4.4% increase in same-store admissions and a 2.8% rise in revenue per adjusted admission. Management pointed to effective recruiting and retention strategies that reduced reliance on contract labor.
- Cost management discipline: Both CEO Sutaria and CFO Sun Park highlighted incremental improvements in salary, wages, and benefits as a percentage of revenue, along with tighter control of supply and operating expenses. These measures helped sustain margins despite modest revenue declines.
- M&A and capacity expansion: The company continued to invest in new ambulatory surgery centers and hospital expansions, including a new partnership in Texas and investments in fast-growing markets like Arizona. Management plans to allocate around $250 million annually to ambulatory acquisitions, with a healthy pipeline in place.
- Policy and reimbursement landscape: Management acknowledged ongoing healthcare policy uncertainty but stated that no strategic changes were being made in response. Engagement with policymakers and contingency planning remain lower priorities compared to growth and cost control.
Drivers of Future Performance
Management’s outlook for the rest of the year centers on sustaining volume growth, expanding higher-acuity services, and executing disciplined capital allocation while remaining attentive to external policy risks.
- Ambulatory service expansion: The company is prioritizing growth in outpatient surgery, particularly higher-acuity specialties, aiming to capture more procedures shifting from hospital to ambulatory centers. Management believes this shift will continue to support revenue and margin growth.
- Labor cost stability: Continued efforts to recruit and retain full-time staff instead of relying on contract labor are expected to help stabilize or further improve labor costs, supporting operating margins.
- Policy risk monitoring: Management noted that while reimbursement and regulatory uncertainties persist, especially around Medicaid and exchange programs, current business strategy remains unchanged. However, contingency plans are in place if policy changes materially affect operations.
Top Analyst Questions
- Stephen Baxter (Wells Fargo): Asked about any unusual items in Q1 besides Medicaid supplemental payments; management stated no other period-specific items impacted results and reiterated the outperformance was due to core operations.
- Greg Hinenbach (Morgan Stanley): Inquired about the size and quality of the ambulatory acquisition pipeline. CEO Sutaria said the pipeline is healthy and the company aims to invest $250 million annually in new centers.
- Joanna Gajuk (Bank of America): Questioned hospital segment margin drivers, excluding Medicaid adjustments. Management cited improved cost controls, higher acuity, and recruiting/retention success as main factors.
- Ryan Langston (TD Cowen): Asked about further opportunities for labor efficiency. Management explained the current focus is on maintaining staff retention and balancing contract labor for capacity, rather than pursuing further cuts.
- Ben Hendrix (RBC Capital Markets): Sought clarity on the sustainability of ambulatory rate growth. Management believes rate momentum should persist due to ongoing service line shifts and favorable contracting trends.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be watching (1) the pace and success of new ambulatory surgery center openings and acquisitions, (2) management’s ability to sustain improved labor cost ratios through recruitment and retention, and (3) any signs of regulatory or reimbursement changes that could impact revenue streams from Medicaid and exchange programs. The effectiveness of capital deployment in both organic investments and share repurchases will also be closely scrutinized.
Tenet Healthcare currently trades at a forward P/E ratio of 12.5×. In the wake of earnings, is it a buy or sell? See for yourself in our free research report.
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