Earnings call transcript: Community Health Systems Q1 2026 EPS miss hits stock

Community Health Systems (CHS) reported disappointing financial results for Q1 2026, with an earnings per share (EPS) of -$0.43, falling short of the anticipated -$0.10. Despite slightly surpassing revenue expectations with $2.97 billion, the company’s significant EPS miss led to a sharp decline in stock price, which fell 6.77% in premarket trading.

Community Health Systems faced a challenging quarter, with financial results falling toward the low end of internal expectations. While revenue growth was driven by rate expansion, the company experienced declines in same-store volumes and admissions. The operating cash flow deteriorated significantly, and divestitures impacted EBITDA negatively.

CHS’s EPS of -$0.43 was significantly below the forecast of -$0.10, resulting in a -330% surprise. Revenue came in slightly above expectations at $2.97 billion versus the $2.96 billion forecast, a minor positive surprise.

Following the earnings announcement, CHS’s stock price fell 6.77% in premarket trading to $2.75, reflecting investor disappointment with the EPS miss. The stock’s movement is notable within its 52-week range, highlighting the market’s negative sentiment. Despite the selloff, InvestingPro data suggests the company may be undervalued, with a Fair Value indicating potential upside from current levels. Analysts maintain a consensus target suggesting roughly 13% upside potential, and the company is featured on InvestingPro’s Most Undervalued list.

CHS continues to focus on strategic investments, particularly in ambulatory surgery centers, to drive future growth. The company projects ongoing challenges in managing costs and improving operational efficiencies. According to InvestingPro Tips, analysts do not anticipate the company will be profitable this year, and net income is expected to drop—aligning with management’s cautious outlook. Notably, while the company posted a quarterly loss, it remained profitable over the last twelve months with diluted EPS of $3.44. InvestingPro’s Financial Health score rates CYH as "GOOD" with a score of 2.93 out of 5, reflecting balanced fundamentals despite near-term headwinds. For deeper insights, investors can access CYH’s comprehensive Pro Research Report, one of 1,400+ available on InvestingPro, which transforms complex data into clear, actionable intelligence.

CEO Tim Smith stated, "While we face headwinds, our strategic investments in outpatient care are poised to enhance our service offerings and market position." CFO Jane Doe added, "We are committed to improving our financial performance through disciplined cost management and strategic divestitures."

Analysts questioned the company’s strategies to address declining volumes and improve cash flow. Management emphasized their focus on operational efficiency and strategic divestitures to enhance financial stability.

Bailey, Conference Operator: Please note this event is being recorded. I would now like to turn the conference over to Anton Hie, Vice President of Investor Relations. Please go ahead.

Anton Hie, Vice President of Investor Relations, Community Health Systems: Thank you, Bailey, and good morning, everyone, and welcome to Community Health Systems’ first quarter 2026 conference call. Joining me on today’s call are Kevin Hammons, Chief Executive Officer, and Jason Johnson, Executive Vice President and Chief Financial Officer. Before we begin, I’ll remind everyone that this conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts. These forward-looking statements are subject to a number of known and unknown risks, which are described in headings such as Risk Factors in our annual report on Form 10-K and other reports filed with or furnished to the SEC. Actual results may differ significantly from those expressed in any forward-looking statements in today’s discussion. We do not intend to update any of these forward-looking statements.

Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We’ve also posted a supplemental slide presentation on our website. All calculations we discuss today will exclude gains or losses from early extinguishment of debt, impairment gains or losses on the sale of businesses, and expense from business transformation costs. With that said, I will turn the call over to Kevin Hammons, Chief Executive Officer.

Kevin Hammons, Chief Executive Officer, Community Health Systems: Thank you, Anton. Good morning, everyone, and thank you for joining our first quarter 2026 conference call and for your continued interest in CHS. Before we begin, I want to acknowledge our employees, physicians, and all of our teammates who have embraced our vision to make the healthcare experience exceptional for our patients, our communities, and each other. As people across our organization share in this commitment, I am confident we will see the benefits of making that healthcare experience exceptional. As we do, more patients will choose our health systems, and we’ll create an even stronger company. Earlier this week, we announced some significant investments in ambulatory surgery centers in our core markets, including the pending acquisition of a majority ownership interest in the Surgical Institute of Alabama, our largest acquisition since 2016.

This surgery center performs more than 8,000 cases annually and is the largest multi-specialty surgery center in Alabama. We expect to close this transaction during the second quarter. During the first quarter, we also purchased a majority interest in South Anchorage Surgery Center in Alaska and opened 2 de novo ASCs in Birmingham and Foley, Alabama. These targeted investments extend CHS’s ability to provide outpatient surgical care in the most advantageous way for our patients while delivering excellent outcomes, optimizing the surgical experience for our physician partners, and driving future growth for our health systems. Turning to our operating performance for the first quarter of 2026, adjusted EBITDA was on the low end of our internal expectations, declining 17.8% from the prior year period, reflecting our strategic transactions to reduce our debt, macroeconomic disruptions across the country, as well as the investments CHS is making in our future.

The quarter’s results include an approximate $50 million year-over-year EBITDA drag from recently completed divestitures that went from being positive contributors in the prior year period to negative in the first quarter of 2026. Closing these divestitures will remove the negative EBITDA drag from future quarters. Additionally, while we benefited from some out-of-period revenue related to the Georgia Directed Payment Program, this tailwind was partially offset by out-of-period provider tax increases related to the Indiana program. Same-store net revenue increased 3.1% year-over-year, driven by 3.7% growth in net revenue per adjusted admission, partly offset by a 0.5% decline in same-store adjusted admissions.

We believe volume and payer mix challenges in the first quarter reflect a temporary disruption in demand for healthcare services in our markets, largely driven by consumer fears related to geopolitical instability and increased cost of living, as well as ongoing aggressive practices used by the managed care companies that drive inefficiency, unnecessarily delay payment, and interfere with the delivery of medical care. I’d like to spend just a minute on our top priorities this year as we work to enhance quality, patient experience, physician experience, and employee satisfaction. We’re realizing operational improvements at an accelerating pace, and our ability to advance in each of these areas will also ultimately drive enhanced financial performance and long-term value creation for our organization and shareholders.

For example, in the area of quality, when the Spring 2026 Leapfrog safety grades are released next month, we expect as many as 80% of CHS’s hospitals to receive a Leapfrog A or B grade, up significantly from just 48% this time a year ago. We also expect 56% of our hospitals to receive a CMS rating of three or more stars when those metrics are published next month, up from 45% in the 2025 ratings. These achievements demonstrate our commitment to continuous improvement and our ability to drive stronger performance in this area. We are hyper-focused on improving the experiences of the people working in our organization, especially our physicians and employees. We have numerous initiatives underway to increase patient satisfaction as well.

On the physician experience front, we are currently deploying an ambient listening technology in our clinics and hospitals, which will help reduce administrative burdens and optimize the time physicians and other providers spend face-to-face with their patients. Investments CHS has made to expand service lines, add new access points, recruit physicians to our markets, and improve our quality and experience, have us better positioned and prepared to accommodate demand as soon as it returns to normal levels. Before I pass the call over to Jason, I’d like to discuss the policy backdrop. Similar to our hospital peers and others in the healthcare industry, we continue to monitor developments related to Medicaid supplemental payment programs and the Rural Health Transformation Program, as well as ACA enhanced premium tax credit expirations and Medicaid work requirements and redeterminations, among other changes.

It is still very early to gauge the impact of these external factors, while there are a lot of moving pieces, unknown variables, and potential consequences. Given CHS’s historical and current presence in many rural and underserved markets, we remain actively engaged with policymakers across each of our states to help ensure that programs under the Rural Health Fund are dire