Hospital management company Universal Health Services (NYSE: UHS) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 6.7% year on year to $4.1 billion. Its non-GAAP profit of $4.84 per share was 11.2% above analysts’ consensus estimates.

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StockStory’s Take

Universal Health Services (UHS) reported first quarter results that management attributed to steady acute care admissions and disciplined expense management. Executives highlighted that effective cost controls and stable operating expenses across both its acute care and behavioral health segments supported profitability, even as certain external challenges, such as winter weather and a leap year comparison, weighed on behavioral patient volumes. CEO Marc Miller noted, “We are particularly encouraged by the control of our operating expenses in both business segments.”

Looking ahead, management reiterated full-year earnings guidance, citing confidence in underlying demand and reimbursement trends. However, there was caution regarding external uncertainties, particularly around Medicaid supplemental payment programs and pending regulatory approvals in states like Tennessee and the District of Columbia. CFO Steve Filton explained, “We certainly are not counting on growth in those [supplemental payment] programs,” emphasizing that future growth in the behavioral business will rely more on patient volume recovery than on government support.

Key Insights from Management’s Remarks

Management’s remarks focused on the interplay between volume growth, pricing, and external pressures across its core business lines. The discussion provided clarity on how UHS is adapting to shifting reimbursement, regulatory environments, and lingering labor market challenges, while also explaining the operational factors that shaped the quarter’s outcomes.

• Acute Care Admissions Impact: Acute care hospitals saw a 2.4% rise in same-facility admissions, with revenue growth aided by both higher volumes and rate improvements. A busy flu season led to a higher proportion of medical (vs. surgical) cases, which impacted supply costs and procedural mix.

• Behavioral Health Volatility: Behavioral health hospitals posted a 5.5% increase in same-facility net revenue, driven mainly by higher revenue per patient day (up 5.8%). However, patient day growth was muted by adverse winter weather and the extra leap day, with management expecting volume recovery in later months.

• Supplemental Medicaid Payments: There were delays in receiving Medicaid supplemental payments in certain states, impacting cash flow. UHS received a significant payment from Nevada in April, but guidance assumes no new approvals in Tennessee or D.C. until finalized, reflecting regulatory uncertainty.

• Expense Controls and Labor Market: Operating expenses remained stable, with premium labor costs consistent at roughly $63 million. Management credited improvements in workforce stability and productivity for controlling wage inflation and reducing reliance on temporary staff.

• Capital Deployment and New Facilities: UHS invested in new hospital openings, notably West Henderson Hospital in Las Vegas, which posted positive early EBITDA. The company remains active in share repurchases as long as market uncertainty and price volatility persist.

Drivers of Future Performance

Management’s outlook for the year centers on the need for patient volume recovery, continued expense discipline, and close monitoring of regulatory developments impacting Medicaid supplemental payments. The company expects behavioral health volume growth and stable pricing to be key contributors to future performance.

• Patient Volume Recovery: The company believes achieving 2.5% to 3% behavioral patient day growth is critical, given muted growth in the first quarter, and expects volumes to improve as seasonal headwinds diminish.

• Expense Management Sustainability: UHS expects ongoing labor market stabilization and productivity initiatives to support sustainable expense levels, while remaining vigilant about potential tariff and supply chain risks.

• Medicaid Policy and Reimbursement: Uncertainty around Medicaid supplemental payment approvals in certain states and broader legislative risks could affect reimbursement, so management is not assuming growth from these programs in its outlook.

Top Analyst Questions

• Justin Lake (Wolfe Research): Asked how behavioral patient volumes trended in March and early April, given weather impacts in prior months. Management said March showed signs of recovery and affirmed the full-year target, acknowledging volume needs to step up in coming quarters.

• Sarah James (Cantor Fitzgerald): Questioned whether behavioral volume guidance implies a higher run rate for the remainder of the year. Management agreed mathematically but reiterated confidence in the original annual targets.

• Andrew Mok (Barclays): Sought details on supply chain exposure to tariffs and vendor contract adjustments. Management estimated about 75% of supply chain purchases are insulated from tariffs and is monitoring for any changes but sees limited impact currently.

• Ben Hendrix (RBC Capital Markets): Inquired into drivers behind strong behavioral rate growth and expectations for normalization. UHS attributed rate growth mainly to improved managed Medicaid pricing, expecting a gradual moderation as industry capacity increases.

• Matthew Gillmor (KeyBanc Capital Markets): Focused on expense management and the sustainability of labor cost improvements. Management indicated premium pay and wage inflation have stabilized, with further productivity gains expected as the labor market remains steady.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be monitoring (1) the pace of patient volume recovery in both acute care and behavioral health segments, (2) developments in Medicaid supplemental payment program approvals, particularly in Tennessee and the District of Columbia, and (3) the sustainability of expense controls amid potential labor market and supply chain pressures. Progress on new hospital ramp-ups and capital allocation will also shape our assessment of UHS’s operational momentum.

Universal Health Services currently trades at a forward P/E ratio of 9.2×. At this valuation, is it a buy or sell post earnings? The answer lies in our free research report.

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