Encompass Health released second quarter earnings on August 5 that surpassed internal projections, prompting the company to elevate its full-year financial guidance in the same announcement. Net operating revenue expanded 9.6% to $1.597 billion, while adjusted earnings per share grew 10.7% to $1.55, demonstrating both top-line and bottom-line expansion for the leading inpatient rehabilitation hospital company.
Patient volume metrics supported the growth narrative. The company discharged 68,895 patients during the quarter, representing a 5.6% increase from the prior year period. Same-store discharge growth reached 2.8% despite the company’s ongoing capacity expansion efforts. Additionally, net patient revenue per discharge increased 3.9% to $22,521, indicating the company is receiving higher compensation per patient while simultaneously treating more patients overall. Capacity additions continued with three new hospitals containing 139 beds opened and 54 beds added to existing facilities during the first half of the year, with plans for five additional hospitals and over 100 more beds before year-end.
Management raised guidance across all major financial metrics. Full-year revenue guidance moved to a $6.41 billion to $6.49 billion range, adjusted EBITDA guidance to $1.365 billion to $1.395 billion, and adjusted earnings per share guidance to $6.02 to $6.25. The board also expanded the stock repurchase authorization to $1 billion on July 23, adding to the $145.8 million in buybacks already completed during the year. These repurchases reduced diluted shares outstanding to 100.0 million from 102.3 million a year earlier.
Financial pressures accompanied the growth expansion. Adjusted free cash flow declined 4.8% to $177.0 million despite adjusted EBITDA growth, as maintenance capital spending surged to $66.2 million from $45.1 million in the prior year quarter. Debt levels increased to $2.598 billion from $2.447 billion at year-end 2025, after the company issued $500 million in bonds during the first half. Interest expense rose to $32.8 million from $30.4 million, and the quarter included a $3.2 million loss on early debt extinguishment. Prior to the authorization increase, approximately $188 million remained available under the previous $1 billion buyback program as of June 30.
Institutional positioning reflected confidence in the company’s direction. Hedge fund ownership increased to 49 funds from 44 in the prior quarter, while short interest remained minimal at 3.74% of the float. The stock traded at a forward price-to-earnings ratio of 18.98 as of September 4, already incorporating expectations for the growth recently delivered.
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