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Chemed (CHE) Q1 Earnings Miss Estimates, Revenues Grow Y/Y

Zacks Equity Research

Chemed Corporation CHE reported first-quarter 2019 adjusted earnings per share (EPS) of $2.92, up 7.4% year over year. The figure missed the Zacks Consensus Estimate by 2%.

Reported EPS came in at $2.70, up 1.5% year over year.

Revenues in the reported quarter increased 5.2% year over year to $462 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 first quarter, net revenues at VITAS totaled $306.8 million, reflecting an increase of 5.1% year over year. The top line improvement was driven by 0.6% growth in geographically weighted average Medicare reimbursement rate and a 6.6% rise in days-of-care. A Medicare Cap liability partially offset this revenue improvement by 1.8%. 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 0.4% 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 $155.3 million in the first quarter, reflecting an increase of 5.5% year over year. According to the company, revenues from water restoration increased 0.3% year over year to $27.7 million. The upside was driven by 3.4% year-over-year growth in commercial revenues and 5.9% rise in residential revenues.

Margin Details

Gross profit increased 4% year over year to $140.1 million in the first quarter of 2019. However, gross margin contracted 34 basis points (bps) year over year to 30.3%.  Adjusted operating profit saw growth of 0.6% from the year-ago period to $66.1 million. However, the adjusted operating margin contracted 65 bps to 14.3%.

Operational Update

Chemed exited the first quarter of 2019 with cash and cash equivalents of $8.8 million, a significant surge from $4.8 million at the end of 2018. The company had total debt of $100 million at the end of the first quarter, which reflected a decline from $142.5 million at the end of the year-ago quarter. During the first quarter, the company repurchased shares worth $49.2 million.

At the end of the quarter under review, net cash provided by operating activities was $73.6 million, compared with $65.2 million at the end of the year-ago period.

Guidance for 2019

Chemed has updated its guidance for 2019.

The company has reaffirmed VITAS Healthcare revenue growth (prior to Medicare Cap) rate expectation within the band of 5.5-6%. In 2019, admissions within this segment are anticipated to improve 3-4% and Average Daily Census is predicted to increase 4-5%, in line with the earlier-issued range. Medicare Cap billing limitations are expected to cap around $10 million.

The Roto-Rooter business is estimated to register revenue growth of 9-10% in the year, down from the band of 13-14% provided earlier. The projection was based on a 2% increase in job pricing, consistent growth in core plumbing plus drain cleaning services as well as revenue generation from water restoration services.

The Zacks Consensus Estimate for 2019 revenues is pegged at $1.90 billion.

Adjusted EPS guidance for 2019 has been reiterated at the range of $12.65-$12.85. The Zacks Consensus Estimate of $12.77 is within the guided range provided by the company.

Our Take

Chemed exited first-quarter 2019 on a dull note. Unfavorable acuity mix shift, fluctuations in net room and board and contractual adjustments dented the top line during the quarter. Meanwhile, the contraction in margins was concerning.

On the brighter side, the company witnessed solid revenue growth across key subsidiaries.

Zacks Rank & Key Picks

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

Some better-ranked stocks which posted solid results this earning season are Stryker Corporation SYK, Abbott Laboratories ABT and CONMED Corporation CNMD, each carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered first-quarter 2019 EPS of $1.88, beating the Zacks Consensus Estimate by 2.2%. Revenues of $3.52 billion were also in line with the Zacks Consensus Estimate.

Abbott reported first-quarter 2019 adjusted EPS of 63 cents, beating the Zacks Consensus Estimate by 3.3%. Worldwide sales totaled $7.54 billion, above the Zacks Consensus Estimate of $7.47 billion.

CONMED posted first-quarter 2019 EPS of 57 cents, which beat the Zacks Consensus Estimate of 54 cents. Revenues were $218.4 million, surpassing the consensus estimate of $213 million.

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