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Chemed (CHE) Up 1.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Chemed (CHE - Free Report) . Shares have added about 1.9% 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 drivers.

Chemed (CHE - Free Report) Q2 Revenue and Earnings Top Estimates, Margins Up

Chemed Corporation (CHE - Free Report) reported second-quarter 2021 adjusted earnings per share of $4.60, up 4.3% year over year. The figure surpassed the Zacks Consensus Estimate by 3.4%.

The company’s GAAP earnings per share was $3.51, registering a 29.9% decline year over year.

Revenues in Detail

Revenues in the reported quarter improved 5.9% year over year to $532.3 million. The metric surpassed the Zacks Consensus Estimate by 0.8%.

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 second quarter, net revenues at VITAS totaled $311.9 million, down 4.7% year over year. This revenue decline was primarily led by a 6.3% decline in days-of-care, a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately 1.8% and an acuity mix shift that reduced the blended average Medicare rate by approximately 90 basis points (bps).

Roto-Rooter reported sales of $220.3 million in the second quarter, up 26.1% year over year.

Total Roto-Rooter branch commercial revenues improved 31.8% on a 39.8% increase in drain cleaning revenues, 32.4% increase in commercial plumbing, 25.8% increase in excavation revenues and an 8.3% increase in commercial water restoration revenues.

Total Roto-Rooter branch residential revenues registered growth of 23.7% on a 20.6% rise in residential drain cleaning revenues, 30.7% improvement in plumbing, 22.4% increase in excavation and 23.1% growth in residential water restoration.

Margin in Detail

Gross profit rose 21.1% year over year to $181.8 million in the second quarter of 2021. Gross margin expanded 427 bps year over year to 34.2%, while the cost of products and services declined 0.5% in the second quarter of 2021.

Adjusted operating profit increased 34.2% from the year-ago period to $87.9 million. Adjusted operating margin expanded 347 bps to 16.5% despite a 11% rise in adjusted operating expenses.

Liquidity & Capital Structure

Chemed exited the second quarter of 2021 with cash and cash equivalents of $92.1 million, marking a significant decline from $210.2 million at the end of the first quarter. Similar to first-quarter 2021, there was no long-term debt at the end of second-quarter 2021.

Cumulative net cash provided by operating activities at the end of the second quarter of 2021 was $132 million compared with $277.8 million a year ago.

In the second quarter, Chemed’s management repurchased stocks for $122 million. As of Jun 30, 2021, there was approximately $312 million of share repurchase remaining under the existing plan.

Guidance 2021

Chemed has announced its revised financial guidance for 2021, taking into account the rapidly changing business environment posed by the ongoing COVID-19 pandemic and the anticipated industry and macro-economic issues that can potentially impact on the company’s business segments.

For 2021, VITAS revenues prior to Medicare Cap are estimated to decline approximately 4.5% from the prior year (initial guidance announced in February projected VITAS revenues prior to Medicare Cap to decline approximately 4.0% from the prior year). Roto-Rooter is forecasted to achieve 2021 revenue growth of 15% to 15.5% (Roto-Rooter was initially 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 share is estimated in the range of $18.20 to $18.50, an improvement from the February-announced guidance of $17.00 to $17.50. The Zacks Consensus Estimate for the metric is pegged at $18.03.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, Chemed has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Chemed has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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