Manor Care is on a roll

Donald Saltz

September 27, 1991|By Donald Saltz

Silver Spring-headquartered Manor Care Inc. recently reported a $2 million increase in earnings for its first fiscal quarter ended Aug. 31, to $10.5 million. That was a nearly 24 percent gain for the company that is a major player in both the health care and hotel industries.

Manor Care is on a roll. Sales and earnings have been rising steadily and the outlook is for a long run of the same. Based on current earnings per share -- 84 cents in the latest fiscal year and 90 cents in the past four quarters -- the stock does not appear to be cheap. It sells for about $22 a share and has a price-earnings ratio of between 24 and 25, but that's not the whole story.

Senior Vice President and Chief Financial officer Jim MacCutcheon notes the bright side. MacCutcheon says the company has positioned itself very well for the America of today, one in which there are many more affluent elderly who can afford to pay for their own health care rather than rely on Medicare programs. He points out that the percentage of older Americans below the poverty line is perhaps half of what it was 25 years ago and we are an aging nation with larger numbers of older Americans.

MacCutcheon says that the other side of Manor Care's business -- hotels -- is relatively profitable because the company has very little investment in real estate but a consistent income as a result of receiving a percentage of the hotels' gross sales.

At the end of August, Manor Care had 2,243 hotels under its wing, including 35 to 40 in Maryland. That total number is tops in the industry. The hotels, found in every state and in 20 foreign countries, are names with which most of us are familiar -- Quality Inns, Comfort Inns, Econo Lodge, Rodeway, Friendship, Clarion and Fleet Inn. By far, the majority are Quality Inns (480 hotels), Comfort Inns (759), and Econo Lodge (678).

Clarion is a bit upscale, says Investor Relations Manager Tracy Munn, but the others are middle-of-the-road or, in the case of Econo Lodge, budget hotels, in vogue these days as folks keep a tighter wrap on their travel expenses.

MacCutcheon says that Manor Care has no significant level of fixed costs in its hotel operations, a real advantage during recessionary times. The parent firm owns only a dozen of the 2,243 units. What it does for its franchise fees is to provide "superior marketing' and reservations, plus, of course, expertise. fact, Manor Care brings in more than a third of total room sales through its own reservations system. In all, the hotels have more than 200,000 rooms.

While Manor Care's hotel business is profitable, the firm's strong attraction for investors is its health care business which provides 80 percent of sales, or more than $600 million of the fiscal 1991 total of $815 million.

Manor Care has 166 nursing homes, again under several names including Four Seasons, Leader, Americana, and the Manor Care name itself. Additionally, the company has a single acute care hospital.

MacCutcheon said Manor Care ranks fourth in size among nursing home operators, behind Beverly Enterprises, Hillhaven Corp., and ARA Living Centers.

"Our [stock's] price-earnings ratio is misleading," MacCutcheon explains. "Almost 30 percent of our health care capacity is only four years old or less, and it takes three years to reach profitability. Earnings are expected to go up rapidly."

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