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Chemed (CHE) Q3 Earnings Surpass Estimates, EPS View Up

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Chemed Corporation (CHE - Free Report) reported third-quarter 2022 adjusted earnings per share (EPS) of $4.74, down 6.3% year over year. The figure, however, surpassed the Zacks Consensus Estimate by 2.8%.

Our model projected an adjusted EPS of $4.61 for Q3.

The company’s GAAP EPS was $3.78, up 16.9% year over year.

Revenues in Detail

Revenues in the reported quarter declined 2.3% year over year to $526.5 million. The metric also missed the Zacks Consensus Estimate by 1.7%.

Our estimate for third-quarter revenues was $531.7 million.

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 third quarter, net revenues at VITAS totaled $297 million, down 6.6% year over year. This revenue decline was primarily due to a 4.4% decline in days of care and a geographically weighted average Medicare reimbursement rate increase of nearly 0.2%.

Our Q3 projection for VITAS segment’s revenues was $297 million.

Roto-Rooter reported sales of $230 million in the third quarter, up 3.9% year over year.

Total Roto-Rooter branch commercial revenues rose 6.9% on a 2.9% increase in drain cleaning revenues, an 11.6% rise in plumbing, 9.8% growth in excavation revenues and a 6.7% hike in water restoration revenues.

Total Roto-Rooter branch residential revenues registered growth of 2.5% on a 5.9% improvement in plumbing, 0.9% rise in excavation and 7.6% growth in residential water restoration. Drain cleaning revenues declined 2.9% from the year-ago period’s levels.

For the Roto-Rooter segment, we projected $234.6 million in revenues for the third quarter.

Margin in Detail

Gross profit declined 8.6% year over year to $179.5 million in the third quarter of 2022. Gross margin contracted 238 basis points (bps) year over year to 34.1%, as the cost of products and services rose 1.4% in the third quarter of 2022.

We projected a gross margin of 37% for Q3.

Chemed Corporation Price, Consensus and EPS Surprise

Chemed Corporation Price, Consensus and EPS Surprise

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

Adjusted operating profit declined 10.9% from the year-ago period to $95.5 million. The adjusted operating margin contracted 177 bps to 18.1% despite a 5.9% decline in adjusted operating expenses.

The adjusted operating margin, according to our model, was 16.8% for Q3.

Liquidity & Capital Structure

Chemed exited the third quarter of 2022 with cash and cash equivalents of $7.8 million, marking a decline from $9.6 million at the end of second-quarter 2022. Long-term debt at Q2 2022-end was $100.9 million, slightly down from the company’s long-term debt of $111.8 million on its balance sheet at the end of second-quarter 2022.

The cumulative net cash provided by operating activities at the end of the third quarter of 2022 was $209.7 million compared with $245 million of cumulative net cash provided by operating activities a year ago.

In the third quarter, Chemed’s management repurchased stocks for $23.9 million. As of Sep 30, 2022, approximately $101 million remained under the existing share repurchase plan.

The company has a consistent dividend-paying history, with five-year annualized dividend growth being 7%.

2022 Guidance

Chemed has updated its financial guidance for 2022, considering the rapidly changing business environment created by the COVID-19 pandemic, uncertainty regarding forward-looking inflation and a potential economic recession that may affect the company’s business segments.

For 2022, VITAS revenues, prior to Medicare Cap, are once again estimated to decline in the range of 4.5-5.0%. Roto-Rooter is forecast to achieve 2022 revenue growth in the range of 6.2-6.5% (up from the earlier projected range of 5.5-5.7%). The current Zacks Consensus Estimate for total revenues is pegged at $2.13 billion, suggesting a 0.3% decline from the 2021 reported figure.

Full-year 2022 adjusted EPS is now estimated in the range of $19.60 to $19.70 (raised from the earlier projected range of $19.30 to $19.50). The Zacks Consensus Estimate for the metric is pegged at $19.46, indicating a 0.7% rise from the year-ago reported figure.

Our Take

Chemed ended the third quarter of 2022 with better-than-expected earnings but a revenue miss. The robust performance of the Roto-Rooter segment was impressive. The company recorded substantial increases in drain cleaning, plumbing, excavation and water restoration revenues in the quarter under review. An increased EPS guidance for 2022 instills investors' optimism.

On the flip side, the year-over-year decline in adjusted EPS and revenues appears concerning. The lower sales performance of the VITAS segment is discouraging. A decline in short-term cash level is worrisome. The persistent macroeconomic headwinds related to the volatility in COVID-19 trends, rising inflationary pressure and other challenges continue to hamper business performance.

Zacks Rank and Key Picks

Chemed currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Elevance Health Inc. (ELV - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) .

Elevance Health, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $7.53, which beat the Zacks Consensus Estimate by 6.1%. Revenues of $39.63 billion outpaced the consensus mark by 1.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Elevance Health has an estimated long-term growth rate of 12%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average being 4.1%.

Medpace Holdings, sporting a Zacks Rank #1, reported third-quarter 2022 EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $383.7 million outpaced the consensus mark by 8.1%.

Medpace Holdings has an estimated growth rate of 44.9% for the full-year 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22%.

Merit Medical, flaunting a Zacks Rank #1, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.

Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.

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