Select Medical Shares Down 20% Despite Q2 Earnings Beat

Core Insights - Select Medical Holdings Corporation (SEM) shares have decreased by 20.4% since the release of Q2 2025 results on July 31, primarily due to lower occupancy rates in the Rehabilitation Hospital segment and increased costs, although improved revenue per patient day and higher admissions in the Critical Illness Recovery Hospital segment provided some offset [1] Financial Performance - Adjusted earnings per share (EPS) for Q2 2025 were reported at 32 cents, surpassing the Zacks Consensus Estimate of 28 cents, but down from 60 cents year-over-year [2][9] - Net operating revenues reached $1.3 billion, reflecting a 4.5% increase from the previous year and exceeding the consensus estimate by 1.5% [2][9] - Total costs and expenses rose by 3.9% year-over-year to $1.3 billion, driven by increasing service costs, which was above the estimated $1.2 billion [3][9] Segment Performance - Critical Illness Recovery Hospital: Revenues were $601.1 million, down 0.6% year-over-year, missing the consensus estimate of $641.4 million. Revenue per patient day decreased by 0.5%, while patient days fell by 0.1%, although admissions increased by 0.9% [4] - Adjusted EBITDA for this segment was $56.3 million, a decline of 21.6% year-over-year, missing estimates [5] - Rehabilitation Hospital: Revenues increased by 17.2% year-over-year to $313.8 million, exceeding the consensus estimate of $264.8 million, supported by a 9.3% rise in admissions and a 7.6% increase in patient days, despite a 200 basis point decline in occupancy rate [6] - Adjusted EBITDA rose to $71 million, a 14.7% increase year-over-year, beating the Zacks Consensus Estimate [7] - Outpatient Rehabilitation: Revenues were $327.6 million, up 3.8% year-over-year, surpassing the consensus estimate of $318.2 million. Adjusted EBITDA increased by 6.1% year-over-year to $30.5 million, although it missed estimates [8] Financial Position - As of June 30, 2025, cash and cash equivalents stood at $52.3 million, down from $59.7 million at the end of 2024. Total assets increased to $5.7 billion from $5.6 billion, while long-term debt rose to $1.8 billion from $1.7 billion [10] - Total equity increased by 2.4% to $2 billion [10] - Net cash provided by operations was $110.3 million, a decline from $278.2 million a year ago [11] Shareholder Returns - In the first half of 2025, Select Medical repurchased shares worth $96.5 million, totaling approximately $696.8 million since the inception of the repurchase program [12] - A cash dividend of 6.25 cents per share was approved, to be paid on August 28, 2025 [12] Outlook - Management maintains revenue guidance for 2025 between $5.3 billion and $5.5 billion, with adjusted EBITDA expected between $510 million and $530 million, and EPS projected between $1.09 and $1.19 [13]