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Why Is Pediatrix Medical Group (MD) Down 15.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Pediatrix Medical Group (MD). Shares have lost about 15.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Pediatrix Medical Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Pediatrix Q1 Earnings Beat on Hospital Contract Fees

Pediatrix Medical reported first-quarter 2024 adjusted earnings per share (EPS) of 20 cents, which outpaced the Zacks Consensus Estimate by 11.1%. However, the bottom line declined 13% year over year.

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Net revenues inched up 0.8% year over year to $495.1 million on the back of growth in same-unit revenues. Yet, the top line fell short of the consensus mark by a whisker.

The quarterly results gained on the back of higher patient volumes and improved hospital contract administrative fees. However, the upside was partly offset by an increased expense level resulting from rising practice salaries and benefits, and transformational and restructuring-related costs.

Q1 Update

Overall same-unit revenues advanced 2.3% year over year. Same-unit revenues, attributable to patient volume, grew 1.3% year over year.

Same-unit revenues from net reimbursement-related factors inched up 1%, attributable to decent growth in hospital contract administrative fees.

Pediatrix Medical’s total operating costs of $479.2 million increased 4% year over year, higher than our estimate of $474.9 million. The rise was due to higher practice salaries and benefits, practice supplies and other operating expenses, and general and administrative expenses, coupled with the incurrence of transformational and restructuring-related expenses in the first quarter.

Practice salaries and benefits, and general and administrative costs increased 1.9% each on a year-over-year basis. Meanwhile, practice supplies and other operating expenses witnessed an uptick of 1.2% year over year. Our estimates indicated the three expense components to increase 2.1%, 0.5% and 0.6%, respectively, on a year-over-year basis.

Transformational and restructuring-related costs of $8.5 million stemmed from position eliminations and revenue cycle management transition activities.

Interest expenses of $10.6 million rose 2% year over year and came higher than our estimate of $10.1 million.

Pediatrix generated a net income of $4 million, which plunged 71.6% year over year.

Adjusted EBITDA fell 7.1% year over year to $37.2 million but beat our estimate of $36.8 million.

Financial Update (as of Mar 31, 2024)

Pediatrix exited the first quarter with cash and cash equivalents of $8 million, which declined more than nine-fold from the 2023-end level. It had a leftover capacity of $80 million in borrowings as part of its revolving credit facility at the quarter end.

Total assets of $2.2 billion slipped 2.3% from the figure at 2023 end.

Total debt, including finance leases, net, amounted to $709.8 million, which escalated 12.1% from the figure as of Dec 31, 2023.

Total shareholders’ equity of $856.2 million inched up 0.8% from the 2023-end level.

Net cash used in operating activities was $125.2 million while the cash usage totaled $100.9 million in the prior-year quarter.

Share Repurchase Update

Pediatrix bought back a nominal number of its common shares for $0.9 million in the first quarter. It had a leftover capacity of $3.7 million under its $500 million repurchase program (approved in August 2018) as of Mar 31, 2024.

2024 View

Management continues to forecast adjusted EBITDA between $200 million and $220 million for 2024, out of which 24-25% will be contributed in the second quarter of 2024. The mid-point of the annual guidance indicates a 4.8% improvement from the 2023 reported figure.

Interest expense continues to be estimated within the range of $39.9-$40.6 million, the mid-point of which suggests a 4.4% fall from the 2023 figure.

Depreciation and amortization expenses are reaffirmed to stay at $39 million.

Transformational and restructuring-related expenses continue to be expected at $25 million. Income tax expense continues to be forecasted to stay within the range of $26.65-$32.40 million.

Net income is estimated to be between $68.75 million and $83.70 million.

For this year, general and administrative costs, as a percentage of revenues, are likely to stay in line or lower than the 2023 level.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Pediatrix Medical Group has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Pediatrix Medical Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Pediatrix Medical Group belongs to the Zacks Medical Services industry. Another stock from the same industry, Revvity (RVTY), has gained 6.8% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.

Revvity reported revenues of $649.92 million in the last reported quarter, representing a year-over-year change of -3.7%. EPS of $0.98 for the same period compares with $1.01 a year ago.

Revvity is expected to post earnings of $1.14 per share for the current quarter, representing a year-over-year change of -5.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.

Revvity has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.

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