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Chemed (CHE) Q1 Earnings Beat Estimates, Gross Margin Up

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Chemed Corporation (CHE - Free Report) reported first-quarter 2021 adjusted earnings per share (EPS) of $4.44, up 20.7% year over year. The figure surpassed the Zacks Consensus Estimate by 5.7%.

The company’s GAAP EPS was $4.01, highlighting an 18.6% improvement year over year.

Revenues in Detail

Revenues in the reported quarter improved 2.2% year over year to $527.4 million. The metric surpassed the Zacks Consensus Estimate by 2%.

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 first quarter, net revenues at VITAS totaled $316 million, down 6.5% year over year. This revenue decline was primarily led by a 7.1% decline in days-of-care, a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately 2.8% and an acuity mix shift that reduced the blended average Medicare rate by approximately 50 basis points (bps).

Roto-Rooter reported sales of $212 million in the first quarter, up 18.9% year over year.

Total Roto-Rooter branch commercial revenues declined 8.4% on a 5.8% fall in drain cleaning revenues, 5% decline in commercial plumbing, 19.5% decrease in excavation revenues and an 8.8% increase in commercial water restoration revenues.

Chemed Corporation Price, Consensus and EPS Surprise

Total Roto-Rooter branch residential revenues registered growth of 32% on a 29.5% rise in residential drain cleaning revenues, 34.9% improvement in plumbing, 35.8% increase in excavation and 28.7% growth in residential water restoration.

Margin in Detail

Gross profit rose 13.9% year over year to $186.9 million in the first quarter of 2021. Gross margin expanded 363 bps year over year to 35.4%, while the cost of products and services declined 3.2% in the first quarter of 2021.

Adjusted operating profit increased 1.9% from the year-ago period to $95.3 million. Adjusted operating margin contracted 5 bps to 18.1% with a 29.8% rise in adjusted operating expenses.

Liquidity & Capital Structure

Chemed exited the first quarter of 2021 with cash and cash equivalents of $210 million, marking an improvement from $162.7 million at the end of the last reported quarter. Similar to fourth-quarter 2020, there was no long-term debt at the end of first-quarter 2021.

First-quarter net cash provided by operating activities was $106.7 million compared with $89.3 million a year ago.

In the first quarter, Chemed’s management repurchased stocks for $44.8 million. As of Mar 31, 2021, there was approximately $134 million of share repurchase remaining under the existing plan.

Guidance 2021

Management is likely to provide the updated 2021 earnings guidance in July along with the second-quarter earnings release.

Our Take

Chemed ended the first quarter of 2021 with better-than-expected earnings and revenues. The figures improved year over year. Solid revenue growth across Roto-Rooter is encouraging, given the challenging business environment. Expansion of gross margins buoys optimism. Chemed exited the first quarter of 2021 will no long-term debt, which is again a positive.

On the flip side, a decline in VITAS revenues during the reported quarter was discouraging. Rising operating expenses and contraction of operating margin are concerns. Reimbursement hampering top-line growth, business seasonality and a tough competitive landscape are other headwinds.

Zacks Rank & Key Picks

Currently, Chemed carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space include Semler Scientific Inc. , Owens & Minor, Inc. (OMI - Free Report) and DENTSPLY SIRONA Inc. (XRAY - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Semler is expected to release results on May 3. The Zacks Consensus Estimate for the company’s first-quarter 2021 adjusted EPS is currently pegged at 48 cents. The consensus mark for first-quarter revenues stands at $11.9 million.

Owens & Minor and is scheduled to release results on May 5. The Zacks Consensus Estimate for its first-quarter 2021 adjusted EPS is currently pegged at 97 cents. The consensus estimate for first-quarter revenues stands at $2.29 billion.

DENTSPLY SIRONA is slated to release results on May 6. The Zacks Consensus Estimate for first-quarter 2021 adjusted EPS is currently pegged at 55 cents. The consensus estimate for revenues stands at $929.3 million.

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