Fitch Ratings revised Community Health Systems’ rating outlook from stable to negative Tuesday after the for-profit hospital operator reported a challenging first half of this year, according to a release.
For the first half of the year, the chain reported a $327 million net loss and $6.04 billion in revenue, compared to a $58 million net loss and $6.02 billion in revenue during the first half of last year.
That sent CHS’ stock down 36% in morning trading following its earnings release.
Challenging operating dynamics like lower-than-anticipated volume, lower net revenue per adjusted admission and significant contract labor costs impacted earnings in the quarter, CEO Tim Hingtgen said in a release.
The rating agency’s downgrade reflects “significant increases in labor costs and weakness in volumes and acuity mix driving a downturn in the company's revenue and margin levels,” according to Fitch.
CHS lowered its full-year expectations in the first quarter of this year when its spending on contract labor more than doubled year over year, executives said during a call with investors at the time.
The chain again cut revenue guidance for the full year in Q2 to reflect shortfalls and expectations for continued volume softness this year, Jefferies analysts wrote in a note.
CHS still benefits from its strengthened balance sheet and liquidity after debt refinancing and exchange transactions, Fitch said.
It also has a portfolio of hospitals and ambulatory facilities repositioned through divestitures and cost reductions and is continuing to invest in expanding traditionally inpatient services to outpatient settings, like ambulatory surgery centers, the release said.
Fitch also affirmed the long-term issuer default ratings of CHS at B-.