Encompass Health’s first quarter results were marked by strong patient volumes and notable improvements in labor efficiency, leading to a positive market reaction. Management attributed the above-consensus performance to broad-based discharge growth across geographies and a favorable payer mix, which contributed to higher revenue per discharge. CEO Mark Tarr highlighted that “our Q1 discharge to community rate was 84%,” underscoring the company’s ongoing focus on patient outcomes and operational execution. The company also reported reduced contract labor costs and continued declines in clinical staff turnover, reflecting effective workforce management.
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Encompass Health (EHC) Q1 CY2025 Highlights:
- Revenue: $1.46 billion vs analyst estimates of $1.43 billion (10.6% year-on-year growth, 1.6% beat)
- Adjusted EPS: $1.37 vs analyst estimates of $1.19 (14.6% beat)
- Adjusted EBITDA: $313.6 million vs analyst estimates of $290.8 million (21.5% margin, 7.8% beat)
- The company slightly lifted its revenue guidance for the full year to $5.89 billion at the midpoint from $5.85 billion
- Management raised its full-year Adjusted EPS guidance to $4.98 at the midpoint, a 3.3% increase
- EBITDA guidance for the full year is $1.2 billion at the midpoint, above analyst estimates of $1.19 billion
- Operating Margin: 18.3%, up from 17% in the same quarter last year
- Same-Store Sales rose 4.4% year on year (6.7% in the same quarter last year)
- Market Capitalization: $12.01 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions Encompass Health’s Q1 Earnings Call
- Pito Chickering (Deutsche Bank) asked about the unexpected increase in Medicare fee-for-service admissions. CFO Douglas Coltharp noted this was not due to strategic actions and is not expected to establish a new trend.
- Whit Mayo (Leerink Partners) inquired about the impact of potential tariffs on construction and supply costs. Coltharp said the company sees minimal near-term risk, as most materials for current projects have already been secured.
- Ann Hynes (Mizuho Securities) questioned whether higher occupancy rates could accelerate growth strategy. Coltharp explained that while bed expansions are increasing, substantial acceleration of de novo hospital openings faces lead-time and staffing constraints.
- Joanna Gajuk (Bank of America) asked why Encompass Health is expanding more aggressively than peers. CEO Mark Tarr and Coltharp cited economies of scale, capital availability, and clinical expertise as key differentiators, with capital allocation focused on capacity growth.
- Andrew Mok (Barclays) sought clarity on the strength of revenue per discharge. Coltharp attributed it to low bad debt and payer mix shifts, but emphasized that guidance assumes a return to previous trends rather than continued outperformance.
Catalysts in Upcoming Quarters
In the coming quarters, our analyst team will be closely monitoring (1) execution on the planned bed expansions and new hospital openings, (2) trends in payer mix and reimbursement rates, particularly any sustained shift in Medicare Advantage dynamics, and (3) labor cost management as the company balances hiring needs with productivity improvements. Progress on these fronts will be critical in assessing whether Encompass Health can maintain its growth trajectory and margin profile.
Encompass Health currently trades at $119.18, up from $101.44 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).
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