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Chemed (CHE) Earnings Top Estimates in Q2, Margins Expand

Zacks Equity Research

Chemed Corporation CHE reported second-quarter 2019 adjusted earnings per share (EPS) of $3.36, up 19.6% year over year. The figure beat the Zacks Consensus Estimate by 8.7%.

Reported EPS came in at $3.08, down 5.8% year over year.

Revenues in the reported quarter increased 7.2% year over year to $474 million but missed the Zacks Consensus Estimate by 0.9%.

Segmental Details

Chemed operates through two wholly-owned subsidiaries, namely, VITAS (a major provider of end-of-life care) and Roto-Rooter (a leading commercial and residential plumbing plus drain cleaning service provider).

In the second quarter, net revenues at VITAS totaled $313 million, reflecting an increase of 5.4% year over year. The top-line improvement was driven by 0.5% growth in geographically weighted average Medicare reimbursement rate and a 5.9% rise in days-of-care. A Medicare Cap liability partially offset this revenue improvement by 0.9%. Revenues were also impacted by acuity mix shift, fluctuations in net room and board and contractual adjustments, the combination of which led to a revenue decline of 0.3% from the prior-year quarter.

Chemed Corporation Price, Consensus and EPS Surprise

 

Chemed Corporation Price, Consensus and EPS Surprise

Chemed Corporation price-consensus-eps-surprise-chart | Chemed Corporation Quote

Roto-Rooter reported sales of $161 million in the second quarter, reflecting an increase of 10.9% year over year. According to the company, revenues from water restoration increased 14% year over year to $28.2 million. The upside was driven by 11% year-over-year growth in commercial revenues and 9.9% rise in residential revenues.

Margin Details

Gross profit increased 10.2% year over year to $149.9 million in the second quarter of 2019. Gross margin expanded 86 basis points (bps) year over year to 31.7%.  Adjusted operating profit saw growth of 15.7% from the year-ago period to $78.4 million. However, the adjusted operating margin expanded 121 bps to 16.6%.

Operational Update

Chemed exited the second quarter of 2019 with cash and cash equivalents of $3.3 million, a significant decline from $8.8 million at the end of the first quarter. The company had long-term debt of $85 million at the end of the second quarter, which declined from $100 million at the end of the first quarter. During the second quarter, the company repurchased shares worth $22.7 million.

Year-to-date net cash provided by operating activities was $108.9 million, compared with $121 million at the end of the year-ago period.

Our Take

Chemed exited the second quarter of 2019 on a mixed note, as earnings beat estimates while revenues missed the same. It is encouraging to note that the company witnessed solid revenue growth across both of its key subsidiaries. Expansion in both the margins during the quarter buoys optimism.

However, unfavorable acuity mix shift, fluctuations in net room and board and contractual adjustments dented the top line during the quarter.

Zacks Rank & Key Picks

Chemed currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space are Hologic Inc. HOLX, DENTSPLY SIRONA Inc. XRAY and Teleflex Inc. TFX.

Hologic is scheduled to release second-quarter 2019 results on Jul 31. The Zacks Consensus Estimate for the quarter’s adjusted EPS is pegged at 61 cents and for revenues stands at $834.6 million. The stock has a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DENTSPLY SIRONA is scheduled to release second-quarter 2019 results on Aug 2. The Zacks Consensus Estimate for the period’s adjusted EPS is 62 cents and for revenues, $1.03 billion. The stock carries a Zacks Rank #1.

Teleflex is expected to release second-quarter 2019 results on Aug 1. The Zacks Consensus Estimate for adjusted EPS in the to-be-reported quarter is $2.59 and for the top line, $636.7 million. The stock has a Zacks Rank of 2.

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