Integrated Health Services says earnings will fall short Stock's substantial drop is second in four months

February 08, 1996|By M. William Salganik | M. William Salganik,SUN STAFF

Integrated Health Services yesterday said its earnings for the last quarter of 1995 will be 51 or 52 cents a share -- less than analysts' expectations of about 57 cents.

The Owings Mills-based company, which provides a variety of subacute and post-acute health services, attributed the shortfall an accounting change, cancellation of a large management contract in California and problems with a hospice acquisition.

IHS's stock fell nearly 9 percent on the news, shedding $2.375 to close at $22.125.

It was the second substantial dip for IHS stock in the past few months. On Oct. 27, a company warning that 1996 earnings could be lower than expected because of Medicare and Medicaid reforms sent the stock down 15 percent in a single day. It traded for more than $40 a share a year ago.

"At IHS, we have met or exceeded analysts' earnings estimates for 19 consecutive quarters," said company President Robert N. Elkins.

"Although we are disappointed that for the first time earnings will be below expectations, we are excited about the continued growth of the company."

Even with the worse-than-expected fourth quarter, earnings to be reported later this month will be about $2.15 a share, compared with $1.72 in 1994. The company attributed the problems to:

* A one-time charge of $62 million to $68 million because of a change in accounting standards for assets.

* A charge of $13 million to $14 million for writing off assets associated with a canceled contract to manage 23 long-term care and psychiatric facilities in California. IHS said the contract could not meet profit expectations because of "minimal" increases in Medicaid reimbursements. After the cancellation, IHS still has contracts to manage 73 facilities and operates 121 more that it leases or owns.

* The company said Samaritan Care Inc., an Illinois hospice it acquired in 1994, had "misrepresented" its financial statements. IHS said it was suing Samaritan Care and had provided information about the hospice to the federal Justice Department.

Brace Brooks, an equity analyst for the Chapman Co. in Baltimore who follows IHS, said, "My view is still positive on the company. Management has been very forthright, and put the worst on the table first."

IHS services include skilled nursing homes, rehabilitation therapy and home care.

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