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Fresenius Medical (FMS) Q2 Earnings Miss, FY17 View Intact

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Fresenius Medical Care AG & Co. KGAA (FMS - Free Report) reported adjusted earnings of 48 cents per American Depositary Share (ADS) in the second quarter of 2017, missing the Zacks Consensus Estimate of 53 cents. Also, earnings per ADS remained flat on a year-over-year basis. In the last quarter, the company had delivered a positive earnings surprise of 20.5%.

In the quarter under review, revenues increased 11.2% at constant currency (cc) on a year-over-year basis to $4,917 million and beat the Zacks Consensus Estimate of $4,785 million.

The stock has a Zacks Rank #1 (Strong Buy).

Fresenius Medical Care Corporation Price, Consensus and EPS Surprise


Fresenius Medical Care Corporation Price, Consensus and EPS Surprise | Fresenius Medical Care Corporation Quote

Segment Details

Revenue Details: Total Health Care Services revenue increased 11% or 9% at cc. Meanwhile, product revenues grew 9% or 8% at cc. We note that organic revenue contribution from Health Care Services increased 6% on a year-over-year basis. A glimpse at product revenues reveals 7% organic growth year over year.

North America revenues: By geography, North America revenues rose 11% year over year and accounted for 72% of total revenue. This was fuelled by higher dialysis treatments and an increase in U.S. revenues per treatment. The Dialysis business grew 6% on a year-over-year basis in the region (3% at cc). Meanwhile, the Care Coordination segment increased 32% (29% at cc).

EMEA revenues: Revenues in the region increased 7% on a year-over-year basis, primarily driven by a positive business development in Dialysis product revenues which increased 6%. Health care services revenues in EMEA rose 6% (5% at cc) in the second quarter.

Asia-Pacific Revenues: Revenues from Asia Pacific grew 19% (17% at cc) on a year-over-year basis. Net Health Care revenues in the region grew 6% organically, courtesy of solid growth in dialysis treatments.

Latin AmericaRevenues: Revenues in the region increased 18%. At cc, the business grew 16%. The region witnessed a strong rise in Dialysis Products revenues, which rose 17% on a year-over-year basis, courtesy of higher sales of dialyzers as well as hemodialysis solutions and concentrates. Health Care Services revenues increased 18% in the region.

Margin Details

Dialysis margin contracted 20 basis points (bps) on a year-over-year basis to 18.2% of net revenues. The company witnessed high expenses for supplies and rent in the quarter that resulted in contraction of margins. However, the adverse impact was roughly nullified by lower bad debt expenses and consent agreement on certain pharmaceuticals in the second quarter.  

Care Coordination margins also decreased on a year-over-year basis owing to lower profit in vascular services and higher  costs  in  pharmacy services.


For full-year 2017, Fresenius Medical reiterated its guidance. The company estimates revenue growth of 8–10% at cc. Net income attributable to shareholders of the company is likely to increase around 7–9%.

Our Take

Fresenius Medical Care ended the second quarter on a mixed note wherein adjusted earnings missed the Zacks Consensus Estimate, while revenues beat the same. The company reiterated its full-year guidance. We believe this is in tune with the company’s long-term objective, or the ‘Growth Strategy 2020’, where it aims to increase revenues to $28 billion by 2020, corresponding to an average annual growth rate of around 10%. A wide range of dialysis products, initiatives to attaining market traction, solid international foothold, strategic acquisitions and divestments are major catalysts for the company.

However, a tough regulatory environment, difficulties in boosting the profit margin in foreign legal-paradigms and competition in the niche markets are major headwinds.

Key Picks

A few other top-ranked stocks in the broader medical sector are Edwards Lifesciences Corporation (EW - Free Report) , Abiomed Inc. (ABMD - Free Report) and Dextera Surgical Inc. .

Notably, Edwards Lifesciences sports a Zacks Rank #1, while Abiomed and Dextera have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. Notably, the stock has a return of 3.4% over the last three months.

Abiomed yielded a strong return of 20.6% over the last one year. The stock has a long-term expected earnings growth rate of 30.5%.

Dextera has a projected sales growth of 54.8% for the current year. The stock promises a long-term expected earnings growth rate of 25%.

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