National HealthCare Corp. :NHC-US: Earnings Analysis: Q4, 2016 By the Numbers : February 16, 2017

National HealthCare Corp. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of National HealthCare Corp. – Ensign Group, Inc. (ENSG-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 238.00 million, Net Earnings of USD 13.86 million.
  • Gross margins narrowed from 9.00% to 7.86% compared to the same period last year, operating (EBITDA) margins now 12.14% from 13.13%.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 238 231.28 227.77 229.59 233.93
Revenue Growth (%YOY) 1.74 2.62 1.27 3.23 3.34
Earnings (mil) 13.86 11.11 11.87 13.7 14.98
Earnings Growth (%YOY) -7.43 -11.59 -3.98 3.45 1.19
Net Margin (%) 5.82 4.8 5.21 5.97 6.4
EPS 0.91 0.73 0.78 0.91 0.99
Return on Equity (%) 8.27 6.62 7.16 8.52 8.51
Return on Assets (%) 5.1 4.08 4.4 5.19 5.63

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Market Share Versus Profits

Revenues History
Earnings History

NHC-US‘s change in revenue this period compared to the same period last year of 1.74% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that NHC-US is holding onto its market share. Also, for comparison purposes, revenues changed by 2.91% and earnings by 24.78% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 9.00% to 7.86%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 13.13% to 12.14% in this time frame. For comparison, gross margins were 5.02% and EBITDA margins were 9.34% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

NHC-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 54.36 days, compared to last year’s level of 49.25 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 9.00% to 7.86% and (2) one-time items that contributed to a decrease in pretax margins from 10.89% to 9.48%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

National HealthCare Corp. engages in the operation of health care centers. It provides sub and post-acute nursing care, intermediate nursing care, rehabilitative care, senior living services and home health care services. The company also offers management services, accounting and financial services and insurance services to third party owners of health care facilities. National HealthCare was founded by Carl E. Adams in 1971 and is headquartered in Murfreesboro, TN.

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