Chemed (CHE) Q2 Earnings Miss Estimates, '23 EPS View Down
Chemed Corporation CHE reported adjusted earnings per share (EPS) of $4.71 in the second quarter of 2023, down 2.7% year over year. The figure lagged the Zacks Consensus Estimate by 7.5%.
The company’s GAAP EPS was $3.51, registering a 20.2% decline year over year.
Revenues in Detail
Revenues in the reported quarter improved 1% year over year to $553.8 million. However, the metric missed the Zacks Consensus Estimate by 1.3%.
Segmental Details
Chemed operates through two wholly owned subsidiaries — VITAS (a major provider of end-of-life care) and Roto-Rooter (a leading commercial and residential plumbing plus drain cleaning service provider).
VITAS
In the second quarter, net revenues totaled $320.9 million, up 7.8% year over year. This figure compares with our model’s segmental projection of $313.7 million for the second quarter.
The rise in revenues was primarily due to a 6.2% increase in days of care and an increase in the geographically weighted average Medicare reimbursement rate of nearly 2.7%.
Chemed Corporation Price, Consensus and EPS Surprise
Chemed Corporation price-consensus-eps-surprise-chart | Chemed Corporation Quote
Roto-Rooter
The segment reported sales of $233 million in the second quarter, down 0.2% year over year. This figure compares with our model’s segmental projection of $247 million for the second quarter.
Total Roto-Rooter branch commercial revenues improved 1.3% from the last year on a 5.4% rise in commercial plumbing, 2.9% growth in excavation revenues and a 9.7% hike in commercial water restoration revenues. This was offset by a 3% decrease in drain cleaning revenues.
Total Roto-Rooter branch residential revenues registered a decline of 1.1% over the prior-year period. This includes an 8.6% decrease in residential drain cleaning revenues and a 2.8% decline in plumbing, offset by 3.8% growth in excavation and a 2.4% increase in residential water restoration.
Margins in Detail
The gross profit declined 7.6% year over year to $179.6 million in the second quarter of 2023. The gross margin contracted 417 basis points (bps) year over year to 32.4% due to an increase in the cost of products and services by 11.1% in the second quarter of 2023.
The adjusted operating profit decreased 20.6% from the year-ago period to $84.6 million. The adjusted operating margin contracted 478 bps to 15.3% on an 8.1% increase in adjusted operating expenses.
Liquidity & Capital Structure
Chemed exited the second quarter of 2023 with cash and cash equivalents of $160 million, which marked a significant increase from $9.6 million at the end of the prior-year period. Meanwhile, the company did not have any long-term debt at the quarter end compared with $111.8 million at the end of the second quarter of 2022.
The cumulative net cash provided by operating activities at the end of the second quarter of 2023 was $192.8 million compared with $157.7 million in the year-ago period.
During the quarter, the company paid off the remaining portion of the $100 million amortizable term loan under its five-year $550 million Amended and Restated Credit Agreement (Credit Agreement).
Chemed has a consistent dividend-paying history, with the five-year annualized dividend growth being 5.85%.
2023 Guidance
Chemed provided updated 2023 guidance during the second-quarter earnings call. The initial guidance was announced as part of the Dec 31, 2022, earnings press release.
The company anticipates 2023 revenues from VITAS, prior to Medicare Cap, to increase in the range of 8.5%-9.5% from the prior year (previously projected at 6%-7%).
Roto-Rooter is expected to achieve 2023 revenue growth in the range of 1-2% (previously 5%-5.5%).
The Zacks Consensus Estimate for 2023 total revenues is pegged at $2.26 billion, suggesting 5.8% growth from the 2022 reported figure.
For the full-year 2023, the adjusted EPS is estimated in the range of $19.90-$20.10 (previously $20.75-$21.10) The Zacks Consensus Estimate for the metric is pegged at $20.8, suggesting 5.2% growth over the 2022 adjusted figure.
Our Take
Chemed ended the second quarter of 2023 with earnings and revenues missing estimates. Within Roto-Rooter, the demand for some of the key services in both commercial and residential segments witnessed a decline. The updated 2023 outlook reflecting lower contributions from the segment and reduced earnings does not bode well for the stock.
A contraction of both margins raises apprehension. In the second quarter, 309 additional licensed healthcare staff were hired for the VITAS segment, which has negatively impacted margins by approximately 80 bps.
On a positive note, the year-over-year increase in VITAS net revenues is encouraging. Substantial increases in Roto-Rooter branch commercial water restoration revenues and commercial plumbing revenues appear promising.
Zacks Rank and Other Key Picks
Chemed currently carries a Zacks Rank #2 (Buy).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, Elevance Health, Inc. ELV and Intuitive Surgical, Inc. ISRG.
Abbott, carrying a Zacks Rank of #2, reported a second-quarter 2023 adjusted EPS of $1.08, beating the Zacks Consensus Estimate by 3.8%. Revenues of $9.98 billion outpaced the consensus mark by 2.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 12.4%.
Elevance Health reported a second-quarter 2023 adjusted EPS of $9.04, beating the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently carries a Zacks Rank #2.
Elevance Health has a long-term estimated growth rate of 12.1%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 2.8%.
Intuitive Surgical reported a second-quarter 2023 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
Intuitive Surgical has a long-term estimated growth rate of 14.5%. ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 4.2%.
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