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Fresenius Beats on Q3 Earnings but Shares Dip

Zacks Equity Research

Dialysis company Fresenius Medical Care (FMS) posted adjusted earnings of $285 million or 47 cents per American Depositary Share or ADS (excluding the impact of sequestration) for the third quarter of the year, topping the Zacks Consensus Estimate by 2 cents per ADS and reflecting a 5.6% rise in net earnings and 6.8% in earnings per share from $270 million or 44 cents per ADS, respectively in the third quarter of 2012.

Despite the earnings rise, shares of FMS sank 2.8% till date, triggered by pessimism due to European Union Commission’s weak outlook for the eurozone economy. The Commission revealed that the economy is expected to dip 0.4% this year and rebound to grow by 1.1% next year compared with the earlier growth projection of 1.2% for 2014.

Revenues and Operating Income

Net revenue grew 7% (up 8% in terms of constant currency) year over year to $3,666 million in the reported quarter, marginally exceeding the Zacks Consensus Estimate of $3,643 million. Organic sales grew 5% globally.

On a geographic basis, revenues from North American markets rose 8% to $2,436 million with organic revenue growth of 6% in the quarter. Overseas revenues increased 5% (up 6% in constant currency) to $1,222 million with organic growth of 4%.

Dialysis services revenues rose 8% (up 9% in terms of constant currency) year over year to $2,813 million with North American revenues moving up 9% to $2,224 million (with same store sales growth of 3.5%) and international sales ascending 5% (up 8% in terms of constant currency) to $589 million.

Dialysis product revenues went up 5% (up 4% in constant currency) year over year to $853 million. Dialysis product revenues in North America rose 5% to $212 million. International dialysis product revenues scaled up 5% (up 4% in terms of constant currency) to $633 million.

Operating income slid 2% to $557 million (15.2% of sales) but adjusted operating income inched up 2% to $576 million (15.7%) in the quarter. In North America, operating income inched down 1% to $416 million (17.1%) but operating income in the international market rose 5% to $204 million (16.7%).

Operating Statistics

As of Sep 30, 2013, Fresenius operated a network of 3,225 dialysis clinics (up 3% year over year) across North America and overseas markets. The number of clinics in North America and overseas both increased 3% year over year to 2,116 and 1,109, respectively.

As of Sep 30, 2013, Fresenius provided dialysis treatment to 265,824 patients (up 4% year over year) on a global scale. Patients in North America increased 3% to 168,893 whereas number of patients overseas rose 4% to 96,931.

In the first nine months of 2013, FMS provided 30.0 million dialysis treatments globally, up 5% year over year. Fresenius’ North American business provided 19.0 million treatments, up 5% year over year while the international business provided 11.0 million treatments, up 4% year over year.

Share Repurchase

Fresenius Medical Care completed its share repurchase program (initiated on May 20, 2013) on Aug 14, 2013. The company has repurchased 7.5 million shares for an aggregate value of €385 million ($500 million) till that date.

Balance Sheet

Fresenius concluded the second quarter with total assets of $22,535 million compared with $22,326 million as of Dec 31, 2012. Total debt was $8,429 million, compared with $8,298 million as of Dec 31, 2012.

In the first nine months of the year, FMS had cash flow of $1,446 million from operating activities, down slightly by 1.4% from $1,467 million in the same period of 2012. Capital expenditures rose 12.8% to $494 million from $438 million in the first nine months of 2012. Consequently, free cash flow went down 7.5% to $952 million from $1,029 million a year ago.  


Fresenius reaffirmed its revenue forecast for 2013. The company envisions sales of over $14,600 million for 2013, up 6% year over year. It expects net income of $1,100–$1,500 million for the year. The company expects capital expenditure of roughly $700 million and plans to spend around $500 million (earlier $300 million) on acquisitions. The guidance assumes the impact from sequestration.

Our Take

We are encouraged by Fresenius’ earnings and revenue beats for the third quarter but remain concerned about the bleak economic outlook of the eurozone economy. Further, macroeconomic issues such as a budget cut in the U.S. (sequestration) is likely to add more pressure on the company’s margins.

Currently, FMS carries a Zacks Rank #3 (Hold). Other stocks that are currently performing well in the medical instruments industry include Cynosure, Inc. (CYNO), CryoLife, Inc. (CRY) and Natus Medical Inc. (BABY). All of these carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on FMS
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Read the Full Research Report on CYNO

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