It has been about a month since the last earnings report for Chemed (CHE Quick QuoteCHE - Free Report) . Shares have added about 2.9% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Chemed’s Q2 Earnings Beat Estimates, Margins Down

Chemed reported second-quarter 2020 adjusted earnings per share (EPS) of $4.41, up 31.3% year over year. The figure beat the Zacks Consensus Estimate by 16.4%.

The company’s GAAP EPS was $5.01, up 62.7% year over year.

Revenues in Detail

Revenues in the reported quarter improved 6% year over year to $502.2 million but lagged the Zacks Consensus Estimate by 1.4%.

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 second quarter, net revenues at VITAS totaled $327 million, reflecting a rise of 4.7% year over year. The top-line improvement was driven by a2.8% increase in days of care, a5.4% increase in geographically weighted average Medicare reimbursement rate (considering the suspension of sequestration on May 1, 2020), andacuity mix shift that reduced the blended average Medicare rate by approximately 310 basis points. However, increase in Medicare Cap, decline in Medicaid net room and board pass through and other contra revenue activity had 42-basis points adverse impact on revenue growth.

Roto-Rooter reported sales of $174.7 million in the second quarter, reflecting growth of 8.6% 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 in the second quarter (a year-over-year increase of 1.9%).

Per the company, total commercial revenues (excluding acquisitions) registered growth of 29.1% on 31.2% rise in drain cleaning revenues, and 28% improvement in commercial plumbing and excavation. However, commercial water restoration revenues declined 20.3%.

Total residential revenues (excluding acquisitions) registered growth of 10.4% on 10.2% rise in residential drain cleaning revenues, a 14.4% improvement in plumbing and excavation, and a 4.3% increase in residential water restoration.

Margin in Detail

Gross profit edged up 0.1% year over year to $150 million in the second quarter of 2020. Gross margin contracted 179 basis points (bps) year over year to 29.9% on 8.8% rise in cost of products and services.

Adjusted operating profit declined 16.4% from the year-ago period to $84.5 million. Adjusted operating margin contracted 351 bps to 13% on an 18.1% rise in adjusted operating expenses.

Operational Update

Chemed exited the second quarter of 2020 with cash and cash equivalents of $20.4 million compared with $28.9 million at the end of the first quarter. There was no long-term debt at the end of second-quarter 2020 compared with $160 million at first quarter-end. In the second quarter, Chemed’s management repurchased stocks for $21.9 million. As of Jun 30, 2020, there was approximately $232 million of share repurchase remaining under the existing plan.

Cumulative net cash provided by operating activities at the end of the second quarter was $277.8 million compared with $108.9 million a year ago.

Guidance

In 2020, revenue growth for VITAS (prior to Medicare Cap) is estimated to be in the range of 5% to 7%. Average daily census in 2020 is estimated to expand in the band of 2% to 4%. Roto-Rooter revenue growth is expected in the range of 9% to 10%.

Full-year adjusted EPS is estimated in the range of $16.20 to $16.40.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Chemed has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Chemed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.