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It has been about a month since the last earnings report for Chemed (CHE). Shares have added about 8.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Chemed due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Chemed’s Q1 Earnings Beat Estimates, Margins Improve
Chemed reported first-quarter 2020 adjusted earnings per share of $3.68, up 26% year over year. The figure beat the Zacks Consensus Estimate by 2.2%.
The company’s GAAP earnings per share was $3.38, up 25.2% year over year.
Revenues in Detail
Revenues in the reported quarter improved 11.6% year over year to $515.8 million, which lagged the Zacks Consensus Estimate by 1.5%.
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 $337.9 million, reflecting a rise of 10.1% year over year. The top-line improvement was driven by a 5% increase in geographically weighted average Medicare reimbursement rate, 5.9% rise in days-of-care and acuity mix shift. However, decline in Medicare Cap, increase in Medicaid net room and board pass through and other contra revenue activity had minimal impact on revenue growth.
Roto-Rooter reported sales of $177.9 million in the first quarter, reflecting growth of 14.6% year over year. On a unit-for-unit basis, excluding the Oakland and HSW acquisitions completed in July and September 2019, the segment registered revenues of $158 million for the first quarter (a year-over-year increase of 1.6%).
Per the company, total commercial revenues (including acquisitions) registered growth of 20.1% on a 25% rise in drain cleaning revenues, and 20.1% improvement in commercial plumbing and excavation. However, commercial water restoration revenues declined 4.4%.
Total commercial revenues (excluding acquisitions) declined 3.5% due to flat year-over-year commercial drain cleaning revenues, a 4.3% fall in commercial plumbing and excavation revenues, and a 15.5% decline in commercial water restoration revenues.
Total residential revenues (including acquisitions) registered growth of 11.7% on an 18.5% rise in residential drain cleaning revenues, a 14.4% improvement in plumbing and excavation, and a 1% increase in residential water restoration.
Total residential revenues (excluding acquisitions) rose 2.4% due to a 4.1% growth in residential drain cleaning revenues, 4.4% increase in plumbing and excavation revenues. However, there was a 1.9% fall in residential water restoration revenues.
Margin in Detail
Gross profit rose 17.1% year over year to $164.1 million in the first quarter of 2020. Gross margin expanded 149 basis points (bps) year over year to 31.8%.
Adjusted operating profit grew 41.5% from the year-ago period to $93.5 million. Moreover, adjusted operating margin expanded 383 bps to 18.1% on a 4.7% decline in adjusted operating expenses.
Chemed exited the first quarter of 2020 with cash and cash equivalents of $28.9 million compared with $6.2 million at the end of 2019. Long-term debt at the end of first-quarter 2020 was $160 million compared with $90 million at 2019-end.
On Mar 13, 2020, Chemed’s management authorized an additional $250 million for stock repurchase under the existing share repurchase program. As of Mar 31, there was approximately $254 million of share repurchase authorization remaining under this plan.
First-quarter net cash provided by operating activities was $89.3 million compared with $73.6 million a year ago.
The management is likely to provide the 2020 earnings guidance in July 2020 as part of the second quarter earnings release.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -6.77% due to these changes.
At this time, Chemed has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Chemed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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