DaVita Inc.: Lots of Explaining To Do On Its Conference Call

Large Cap Watch List member DaVita (DVA) reported earnings:

DaVita Inc., today announced results for the quarter ended March 31, 2007. Net income for the three months ended March 31, 2007 was $76.6 million, or $0.72 per share, as compared with $57.5 million, or $0.55 per share, for the same period of 2006.

Analysts were expecting the company to earn $0.72. Although the numbers for the quarter were spot-on, the company raised its operating income guidance for the full year.

We are revising our 2007 operating income guidance: Operating income is now projected to be in the range of $740-$780 million. Our previous guidance was for operating income to be in the range of $700-$760 million. Operating cash flow for 2007 is currently projected to be in the range of $460-$510 million.

As a general rule, we don’t like it when companies issue guidance that you have to figure out. Why guide operating income when the reporting is primarily in net? In this case, when we extrapolate out the current non-operating items we get a $2.82 number, while the analyst consensus is at $3.12. Were the non-operating expenses (interest cost) higher than normal in the first quarter? Will there be higher expected non-operating income for the full year? Are analysts consensus figures incorporating some sort of pro-forma “operating income” based earnings per share? Or were the analyst estimates just too high?

It sounds like the company will have a lot of explaining to do on the conference call.

DVA 1-yr chart: