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Fresenius Medical (FMS) Q3 Earnings Miss, Operating Margin Up
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Fresenius Medical Care AG & Co. KGaA (FMS - Free Report) reported third-quarter 2023 adjusted earnings per share (EPS) of 31 cents, which missed the Zacks Consensus Estimate of 37 cents by 16.2%. The bottom line declined 22.5% year over year.
Revenue Details
Revenues of $5.37 billion (EUR 4,936 million) missed the Zacks Consensus Estimate by 1%. The company reported a revenue decline of 3% year over year and 7% at constant currency (cc) as well as on an organic basis.
Segmental Details
Fresenius Medical implemented a new operating model during the first quarter and started reporting under two new segments — Care Delivery and Care Enablement. Previously, the company reported under the Health Care Products and Health Care Services segments. The Care Delivery segment primarily consists of products earlier reported under the Health Care Services segment.
Care Delivery
The segment’s revenues declined 4% on a year-over-year basis but gained 6% at cc and 7% on an organic basis.
Revenues in the U.S. markets declined 3% but gained 4% at cc and 5% on an organic basis. Sales were hurt by the negative exchange rate effect and a decrease in dialysis days. However, the favorable impact from the value-based care business, reimbursement rate increases and a favorable payor mix helped partially offset the decline.
FMS stated that the annualization effect of COVID-19-related excess mortality in the late-stage chronic kidney disease (CKD) and end-stage renal disease (ESRD) population continues to hurt treatment growth in the U.S. market.
International sales declined 7% reportedly but gained 14% at cc and 16% on an organic basis. A negative exchange rate effect and the impact of closed or sold clinics led to the decline, partially offset by a significant effect of hyperinflation in various markets.
Care Enablement
The segment’s revenues decreased 3% year over year, but rose 5% at cc as well as on an organic basis. Sales declined due to the unfavorable impact of currency movement, partially offset by higher sales of in-center disposables, machines for chronic treatment and home hemodialysis products as well as higher average sales prices.
Margins
Operating income, excluding special items and U.S. Provider Relief Funding, was up 14% from that reported in the prior-year quarter. The metric also gained 20% at cc. Operating margin, excluding the aforementioned items, was 8.7%, up 130 bps from the year-ago quarter’s actual.
2023 Outlook
Fresenius Medical maintained its outlook for revenues in 2023. The company expects revenues to grow at a low-to-mid single-digit percentage rate. However, it raised its operating income guidance following favorable earnings growth in the first nine months of 2023. The metric is now estimated to grow at a low-single-digit percentage rate (previously remained flat or declined by up to a low-single-digit percentage rate).
Fresenius Medical Care AG & Co. KGaA Price, Consensus and EPS Surprise
Although FMS exited the third quarter on a dismal note, its results reflected strong organic growth on the back improving treatment volumes as well as a stabilizing labor environment in the United States. A potential continuation of improvement in these two key factors will be beneficial for the company in the rest of 2023. Overall price improvements also supported growth in the Care Enablement segment.
Meanwhile, FMS’ newly implemented operating model led to operational improvements. The bottom line was hurt by inflationary cost increases in energy, material and personnel. These headwinds are likely to improve over the year, which also gets reflected in the company’s operating outlook. In the first nine months, FMS generated EUR 232 million in savings by implementing initiatives under its FME25 transformation program. The company targets savings in the range of 250-300 million euros by 2023-end, and 650 million euros by 2025-end. These are likely to continue to improve the operating margin going forward.
The company’s plans to divest its noncore and dilutive assets look promising as they will help it to focus on its core and growing categories as well as boost its cash resource.
Zacks Rank and Stocks to Consider
Currently, Fresenius Medical carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories (ABT - Free Report) , DexCom (DXCM - Free Report) and Integer Holdings (ITGR - Free Report) .
Revenues of $10.14 billion outpaced the consensus mark by 3.6%.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 6.76%.
DexCom reported third-quarter 2023 adjusted EPS of 50 cents, which beat the Zacks Consensus Estimate by 47.1%. Revenues of $975 million beat the Zacks Consensus Estimate by 4%. The company currently carries a Zacks Rank #2.
DXCM has a long-term estimated growth rate of 33.6%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 36.43%.
Integer Holdings reported third-quarter 2023 adjusted EPS of $1.27 and revenues of $405 million, which beat their respective Zacks Consensus Estimate by 21% and 8.7%. It currently carries a Zacks Rank #2.
ITGR has a long-term estimated growth rate of 15.8%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 11.98%.
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Fresenius Medical (FMS) Q3 Earnings Miss, Operating Margin Up
Fresenius Medical Care AG & Co. KGaA (FMS - Free Report) reported third-quarter 2023 adjusted earnings per share (EPS) of 31 cents, which missed the Zacks Consensus Estimate of 37 cents by 16.2%. The bottom line declined 22.5% year over year.
Revenue Details
Revenues of $5.37 billion (EUR 4,936 million) missed the Zacks Consensus Estimate by 1%. The company reported a revenue decline of 3% year over year and 7% at constant currency (cc) as well as on an organic basis.
Segmental Details
Fresenius Medical implemented a new operating model during the first quarter and started reporting under two new segments — Care Delivery and Care Enablement. Previously, the company reported under the Health Care Products and Health Care Services segments. The Care Delivery segment primarily consists of products earlier reported under the Health Care Services segment.
Care Delivery
The segment’s revenues declined 4% on a year-over-year basis but gained 6% at cc and 7% on an organic basis.
Revenues in the U.S. markets declined 3% but gained 4% at cc and 5% on an organic basis. Sales were hurt by the negative exchange rate effect and a decrease in dialysis days. However, the favorable impact from the value-based care business, reimbursement rate increases and a favorable payor mix helped partially offset the decline.
FMS stated that the annualization effect of COVID-19-related excess mortality in the late-stage chronic kidney disease (CKD) and end-stage renal disease (ESRD) population continues to hurt treatment growth in the U.S. market.
International sales declined 7% reportedly but gained 14% at cc and 16% on an organic basis. A negative exchange rate effect and the impact of closed or sold clinics led to the decline, partially offset by a significant effect of hyperinflation in various markets.
Care Enablement
The segment’s revenues decreased 3% year over year, but rose 5% at cc as well as on an organic basis. Sales declined due to the unfavorable impact of currency movement, partially offset by higher sales of in-center disposables, machines for chronic treatment and home hemodialysis products as well as higher average sales prices.
Margins
Operating income, excluding special items and U.S. Provider Relief Funding, was up 14% from that reported in the prior-year quarter. The metric also gained 20% at cc. Operating margin, excluding the aforementioned items, was 8.7%, up 130 bps from the year-ago quarter’s actual.
2023 Outlook
Fresenius Medical maintained its outlook for revenues in 2023. The company expects revenues to grow at a low-to-mid single-digit percentage rate. However, it raised its operating income guidance following favorable earnings growth in the first nine months of 2023. The metric is now estimated to grow at a low-single-digit percentage rate (previously remained flat or declined by up to a low-single-digit percentage rate).
Fresenius Medical Care AG & Co. KGaA Price, Consensus and EPS Surprise
Fresenius Medical Care AG & Co. KGaA price-consensus-eps-surprise-chart | Fresenius Medical Care AG & Co. KGaA Quote
Summing Up
Although FMS exited the third quarter on a dismal note, its results reflected strong organic growth on the back improving treatment volumes as well as a stabilizing labor environment in the United States. A potential continuation of improvement in these two key factors will be beneficial for the company in the rest of 2023. Overall price improvements also supported growth in the Care Enablement segment.
Meanwhile, FMS’ newly implemented operating model led to operational improvements. The bottom line was hurt by inflationary cost increases in energy, material and personnel. These headwinds are likely to improve over the year, which also gets reflected in the company’s operating outlook. In the first nine months, FMS generated EUR 232 million in savings by implementing initiatives under its FME25 transformation program. The company targets savings in the range of 250-300 million euros by 2023-end, and 650 million euros by 2025-end. These are likely to continue to improve the operating margin going forward.
The company’s plans to divest its noncore and dilutive assets look promising as they will help it to focus on its core and growing categories as well as boost its cash resource.
Zacks Rank and Stocks to Consider
Currently, Fresenius Medical carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories (ABT - Free Report) , DexCom (DXCM - Free Report) and Integer Holdings (ITGR - Free Report) .
Abbott, carrying a Zacks Rank #2 (Buy) at present, reported third-quarter 2023 adjusted EPS of $1.14, which beat the Zacks Consensus Estimate by 3.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Revenues of $10.14 billion outpaced the consensus mark by 3.6%.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 6.76%.
DexCom reported third-quarter 2023 adjusted EPS of 50 cents, which beat the Zacks Consensus Estimate by 47.1%. Revenues of $975 million beat the Zacks Consensus Estimate by 4%. The company currently carries a Zacks Rank #2.
DXCM has a long-term estimated growth rate of 33.6%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 36.43%.
Integer Holdings reported third-quarter 2023 adjusted EPS of $1.27 and revenues of $405 million, which beat their respective Zacks Consensus Estimate by 21% and 8.7%. It currently carries a Zacks Rank #2.
ITGR has a long-term estimated growth rate of 15.8%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 11.98%.