The Regis Healthcare Ltd (ASX: REG) share price has come under heavy selling pressure on Friday.
At the time of writing the aged care provider’s shares are down a disappointing 14% to $2.74.
Why is the Regis Healthcare share price crashing lower?
Investors have been heading to the exits in their droves this morning following the release of a trading update.
Hot on the heels of a disappointing update from Estia Health Ltd (ASX: EHE) last week, Regis Healthcare has revealed that tough trading conditions have been weighing on its occupancy rate.
In December Regis Healthcare’s year to date occupancy had fallen to 92%. And as of December 17 its spot occupancy rate was 91.5%, down from 92.4% at the end of June.
Management blamed this decline on the challenging industry conditions that the sector continues to experience. It notes that recent data shows that industry occupancy stood at 89.4% for FY 2019, which is the lowest in three years.
One small positive, though, is that Regis Healthcare has managed to keep its non-wage costs in line with its targets.
What impact will this have on its financial performance?
In light of this weaker occupancy and an expected increase in wage costs, Regis Healthcare has downgraded its earnings guidance for FY 2020.
Previously the company was expecting to deliver normalised EBITDA of around $105 million and normalised net profit after tax of ~$38 million in FY 2020. This was already going to be a decline from the $111.4 million and $47.2 million achieved in FY 2019.
However, it now expects normalised EBITDA of $92 million and normalised net profit after tax of $28 million. This represents a ~12.5% and ~26.5% downgrade, respectively, to its previous guidance.
Furthermore, management warned that its guidance assumes no further significant decline in occupancy during FY 2020. Which is far from guaranteed given current trading conditions.
This news, in conjunction with Estia Health’s update last week, has put pressure on the Japara Healthcare Ltd (ASX: JHC) share price today. Its shares are down a sizeable 7.5% in morning trade.
The post Why the Regis Healthcare share price tumbled 14% lower today appeared first on Motley Fool Australia.
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