Fresenius Improves Year-over-Year

World's largest dialysis company Fresenius Medical Care (FMS - Snapshot Report) announced fourth quarter 2012 adjusted earnings per ordinary share of $1.07, which surpassed the year-ago earnings of $1.02 per ordinary share. For 2012, adjusted earnings per share of $3.66 beat the year-ago earnings of $3.52 per share.

Net income attributable to the company dropped 17% year over year to $257 million (or 84 cents per share) in the quarter.

Quarter in Detail

Net revenues edged up 13% (up 14% in terms of constant currency) year over year to $3,706 million in the reported quarter. Organic sales growth was 8% on a global basis. For 2012, sales were $13,800 million, up 10%.

On a geographic basis, revenues from the North American markets soared 19% to $2,429 million in the quarter while overseas revenues increased 4% (up 6% in terms of constant currency) to $1,270 million.

Dialysis services revenues increased 18% (up 19% in terms of constant currency) year over year to $2,804 million with U.S. sales spurting 22% year over year to $2,222 million and international sales ascending 5% (up 8% in terms of constant currency) year over year to $582 million. Average revenue per treatment for U.S. clinics grew to $368 from $351 a year ago.

Consolidated dialysis product revenues increased 2% (up 4% in terms of constant currency) year over year to $902 million. Dialysis product sales in the U.S. market decreased 3% to $207 million. International dialysis product sales increased 3% (up 5% in terms of constant currency) to $688 million.

Operating Statistics

Fresenius operated a network of 3,160 dialysis clinics (up 9% year over year) across North America and the overseas markets, as of Dec 31, 2012. The number of clinics increased 13% in North America while offshore dialysis clinics increased 2% year over year.

Fresenius has provided dialysis treatment to 257,916 patients (up 11% year over year) on a global scale, as of Dec 31, 2012. Patients in North America increased 16% whereas number of patients in international markets ascended 3% year over year.

The company provided 38.6 million dialysis treatments (up 12% year over year) globally, as of Dec 31, 2012. Fresenius’ North American franchise soared 13%, while the international segment improved 11% year over year.

Margins

Operating margin increased marginally to 18.1% from 18% in the prior year quarter. In North America, operating margin was up to 21.2% from 19.6% a year ago while operating margin for overseas markets decreased to 16.7% from 18.7% in the year-ago period.

Cash Flows

Fresenius concluded the fourth quarter with cash (from operations) of $572 million (15.4% of sales) up 15% year over year. The cash flow generation was helped by improvement in working capital.

The company spent $227 million on capital expenditures in the quarter. Free cash flow, prior to acquisitions, was $345 million versus $306 million a year ago. The company spent $59 million on acquisitions and investments, net of divestitures. Free cash flow, post acquisitions, divestures and investments, was $286 million compared with $(298) million in the prior-year period.

Guidance Reaffirmed

Fresenius issued its forecast for 2013. The company envisions sales of over $14,600 million for 2013. Operating income is expected in between $2,300 million and $2,500 million. Expected net income (for shareholders) for 2013 is about $1,100 million to $1,200 million. The company expects capital expenditure of roughly $700 million and plans to spend around $300 million on acquisitions.

Fresenius is the largest provider of products and services for patients undergoing dialysis treatment on the planet. The company’s principal competitor in the U.S. is DaVita Inc. (DVA - Analyst Report), which provides dialysis services for patients suffering from chronic kidney failure or end stage renal disease. Fresenius also competes with Baxter International (BAX - Analyst Report) in certain niches such as peritoneal dialysis products.

The company continues to register strong operating results in the North American as well as overseas markets. The integration of recent acquisitions is also expected to be accretive to Fresenius’ earnings in the near term. However, the contagion of lingering economic problems in Europe, remains a matter of concern.

The stock carries a Zacks Rank #4 (Sell). Cyberonics Inc. (CYBX - Analyst Report) carries a Zacks Rank #1 (Strong Buy) and is expected to do well.