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Chemed (CHE) Q4 Earnings Miss Estimates, 2021 Outlook Dull

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Chemed Corporation (CHE - Free Report) reported fourth-quarter 2020 adjusted earnings per share (EPS) of $5.13, up 21.6% year over year. However, the figure lagged the Zacks Consensus Estimate by a penny.

The company’s GAAP EPS was $6.96, highlighting a 75.8% surge year over year.

Full-year adjusted EPS was $18.08, reflecting a 29.6% increase from the year-ago period. However, the figure was in line with the Zacks Consensus Estimate.

Revenues in Detail

Revenues in the reported quarter improved 2.1% year over year to $533.3 million. The metric lagged the Zacks Consensus Estimate by 0.1%.

Full-year revenues were $2.08 billion, reflecting a 7.3% increase from a year ago. However, the metric was in line with the Zacks Consensus Estimate.

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).

In the fourth quarter, net revenues at VITAS totaled $332 million, down 2.3% year over year. This revenue decline is comprised primarily of a 2.8% decline in days-of-care, a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately 2.4%, and acuity mix shift that reduced the blended average Medicare rate increase approximately 255 basis points (bps). Further, the combination of lower Medicare Cap and a decrease in Medicaid net room and board pass-through drove revenue growth an additional 64 bps in the reported quarter.

Roto-Rooter reported sales of $201 million in the fourth quarter, up 10.2% year over year. On a unit-for-unit basis (excluding the Oakland and HSW acquisitions completed in July 2019 and September 2019, respectively), fourth-quarter Roto-Rooter revenues were $183 million, showing an increase of 12.8% year over year.

Chemed Corporation Price, Consensus and EPS Surprise

 

Chemed Corporation Price, Consensus and EPS Surprise

Chemed Corporation price-consensus-eps-surprise-chart | Chemed Corporation Quote

Total commercial revenues (excluding acquisitions) declined 9.8% on an 11.6% fall in drain cleaning revenues, an 8.9% decline in commercial plumbing and excavation revenues, and a 1% drop in commercial water restoration revenues.

Total residential revenues (excluding acquisitions) registered growth of 20.8% on a 17.1% rise in residential drain cleaning revenues, a 25.5% improvement in plumbing and excavation as well as a 16.8% increase in residential water restoration.

Margin in Detail

Gross profit rose 13.3% year over year to $198.2 million in the fourth quarter of 2020. Gross margin expanded 367 bps year over year to 37.2%, while cost of products and services declined 3.5% in the fourth quarter of 2020.

Adjusted operating profit increased 21.6% from the year-ago period to $111.4 million. Adjusted operating margin expanded 334 bps to 20.9% despite a 4.2% rise in adjusted operating expenses.

Operational Update

Chemed exited 2020 with cash and cash equivalents of $162.7 million, marking a significant improvement from $6.2 million at the end of 2019. There was no long-term debt at the end of 2020, while long-term debt at 2019-end was $90 million.

In the fourth quarter, Chemed’s management repurchased stocks for $28.5 million. As of Dec 30, 2020, there was approximately $178 million of share repurchase remaining under the existing plan.

Cumulative net cash provided by operating activities at the end of 2020 was $489.3 million compared with $301.2 million at the end of 2019.

Guidance 2021

Chemed has announced its financial guidance for 2021, taking the pandemic-led impact into consideration.

For 2021, VITAS revenues prior to Medicare Cap are estimated to decline approximately 4.0% from the prior year. Roto-Rooter is forecasted to achieve 2021 revenue growth of 5% to 6%. The Zacks Consensus Estimate for total revenues is pegged at $2.13 billion.

Full-year 2021 adjusted earnings per diluted share is estimated in the range of $17.00 to $17.50. The Zacks Consensus Estimate for the metric is pegged at $17.58.

Our Take

Chemed ended the fourth quarter of 2020 with lower-than expected numbers. However, the figures improved year over year. Solid revenue growth across Roto-Rooter Subsidiary is encouraging given the challenging business environment. Expansion of both margins buoy optimism. Chemed exited 2020 will no long-term debt, which is again a plus.

On the flip side, decline in VITAS revenues during the reported quarter is discouraging. Moreover, Chemed announced the financial guidance for 2021, projecting a decline in VITAS revenues through the year. Full-year adjusted earnings projection also falls below expectation.  Reimbursement hampering top-line growth, business seasonality and a tough competitive landscape are other concerns.

Zacks Rank & Key Picks

Chemed currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical space that have already announced their quarterly results are Abbott Laboratories (ABT - Free Report) , AngioDynamics, Inc. (ANGO - Free Report) and Hill-Rom Holdings, Inc. (HRC - Free Report) , each carrying  a Zacks Rank #2 (Buy).You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Abbott reported fourth-quarter 2020 adjusted EPS of $1.45, which surpassed the Zacks Consensus Estimate by 6.6%. Worldwide sales of $10.7 billion in the quarter outpaced the consensus mark by 7.9%.

AngioDynamics reported second-quarter fiscal 2021 adjusted EPS of a penny against the Zacks Consensus Estimate of a loss per share of 2 cents. Revenues of $72.8 million beat the consensus mark by 8%.

Hill-Rom reported first-quarter fiscal 2021 adjusted EPS of $1.53, beating the Zacks Consensus Estimate by 45.7%. Revenues of $741.1 million surpassed the consensus mark by 13.2%.

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