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Genesis Healthcare shares take hit from 4Q profit shortfall

Shares in Genesis Healthcare Inc. fell 4 percent Monday, adding to an 18 percent drop Friday - the result of a significant fourth-quarter profit shortfall for the Kennett Square nursing-home operator.

Shares in Genesis Healthcare Inc. fell 4 percent Monday, adding to an 18 percent drop Friday - the result of a significant fourth-quarter profit shortfall for the Kennett Square nursing-home operator.

Genesis, which this month began trading on the New York Stock Exchange after seven years under private ownership, last week reported fourth-quarter profit of $125.7 million, excluding interest, taxes, rent, and certain accounting charges.

That was more than $30 million below the $157 million to $160 million Genesis told investors and analysts to expect in a November presentation.

Investors responded sharply, cutting the value of Genesis's stock by $1.58. Shares closed Friday at $7.21. The shares ticked down further Monday to $6.93, bringing the two-day loss to 21 percent.

Genesis merged with publicly traded Skilled Healthcare Group Inc. on Feb. 2. That deal put Genesis back in the ranks of publicly traded firms. The combined operations are run from Genesis' offices in Kennett Square, where more than 900 work.

Genesis has a large presence in the region, with 23 nursing homes, plus other operations, including several PowerBack Rehabilitation Centers.

George V. Hager, chief executive of Genesis, blamed the fourth-quarter results on poor "management of controllable expenses relative to patient volume, principally in the area of labor management, an area we have historically excelled in."

Hager said "the degree of distraction among our key operational and corporate leaders" caused by the merger was a factor.

For example, Genesis said, it failed to use therapists as efficiently as it has in the past.

In the fourth quarter, therapists worked with patients - generating billable hours - 65 percent of the time they were on the clock. In the first three quarters of 2014, that figure was 69 percent. That decline in efficiency cost Genesis $10 million in the fourth quarter, it said.

In reaction to the fourth-quarter performance, Genesis cut $30 million to $40 million of costs by reducing staff hours, eliminating more than 300 full-time-equivalent positions, and modifying employee benefits, Genesis said.

Some of the eliminated positions were already vacant, Genesis said. Two percent of the reduced hours were in Kennett Square, but the merger is expected to result in a net gain of 60 to 80 jobs there, a company spokeswoman said.

Skilled Healthcare missed its profit target of $27.5 million by $1.4 million, or 5 percent. Genesis, by contrast, missed by 20 percent.

Pennsylvania and New Jersey are the two biggest markets for Genesis, which has 412 facilities in 28 states. Skilled has 95 facilities in eight states.

Combined, the two companies had $5.6 billion in revenue last year.