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Chemed (CHE) Beats on Q4 Earnings & Revenues, Issues View

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Chemed Corporation’s (CHE - Free Report) fourth-quarter 2017 adjusted earnings per share (EPS) were $2.32, as compared with the year-ago figure of $2.10. The figure also surpassed the Zacks Consensus Estimate of $2.28.

Full-year 2017 adjusted EPS came in at $8.43, beating the Zacks Consensus Estimate of $8.38. Moreover, the figure improved from the year-ago number of $7.24.

Quarter in Details

Revenues in the quarter increased 6.2% year over year to $428.4 million, beating the Zacks Consensus Estimate of $422 million.

Net revenues in 2017 totaled $1.67 billion, outpacing the Zacks Consensus Estimate of $1.66 billion. The figure also improved from the year-ago number of $1.58 billion.

Chemed currently operates through two wholly-owned subsidiaries, namely, VITAS Healthcare Corporation (a major provider of end-of-life care) and Roto-Rooter (a leading commercial and residential plumbing and drain cleaning service provider).

In the fourth quarter, net revenues at VITAS Healthcare totaled $292.3 million, reflecting an increase of 2.8% year over year. Revenues were driven by a 0.8% increase in the average net Medicare reimbursement rate and a 4.7% rise in average daily census. However, this was partially offset by acuity mix shift which impacted revenues by 1.7% and 0.9% adverse impact on revenues due to Medicare Cap.

Chemed Corp. Price, Consensus and EPS Surprise



Roto-Rooter reported sales of $136.1 million in the fourth quarter, up 14.1% year over year. According to the company, revenues from water restoration increased 61.7% year over year to $22.1 million.

Gross margin expanded 110 basis points (bps) year over year to 31.9%. Adjusted operating margin contracted a nominal 10 bps to 15.2% in the quarter on a 14.6% rise in selling, general and administrative expenses to $71.6 million.

Chemed exited 2017 with total cash and cash equivalents of $11.1 million, down from $15.3 million at the end of 2016. The company had total debt of $91.2 million at the end of 2017, compared with $100 million a year ago. As of Dec 31, 2017, the company had approximately $288 million in undrawn borrowing capacity under its existing five-year credit agreement.

During the fourth quarter, the company did not repurchase shares. As of Dec 31, 2017, the company had $55.5 million of remaining shares under its repurchase authorization.

2018 Outlook

The company projects VITAS Healthcare revenue growth for 2018 in the range of 2.5% to 3.5%, prior to the Medicare Cap. Also, the admissions and Average Daily Census in 2018 are expected to increase 3% to 4%. Medicare Cap billing limitations are expected at around $5 million in 2018.

The Roto-Rooter business is likely to grow 4% to 5% in the full year. The guidance was backed by a 2% increase in job pricing and water restoration services growth.

Full-year adjusted EPS is expected to grow in the band of $10.60 to $10.85 as compared with $8.43 reported in 2017.

Our Take

Chemed exited the fourth quarter on a solid note. Also, the company witnessed year-over-year growth in both the fronts. Moreover, we are encouraged to note that the company’s subsidiaries saw year-over-year revenue growth in the quarter. The expansion in gross margin and strong bottom-line projections also buoy optimism.

Further, reimbursement-related issues, seasonality in business, a competitive landscape and dependence on government mandates continue to pose challenges.

 Key Picks

A few top-ranked stocks that reported solid results this earnings season are PetMed Express (PETS - Free Report) , PerkinElmer (PKI - Free Report) and Becton, Dickinson and Company (BDX - Free Report) . While PetMed sports a Zacks Rank #1 (Strong Buy), PerkinElmer and Becton, Dickinson carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported third-quarter fiscal 2018 adjusted earnings per share of 44 cents, up 88.3% from the prior-year quarter. Revenues rose 13.7% to $60.1 million.

PerkinElmer posted fourth-quarter 2017 adjusted earnings per share of 97 cents. Adjusted revenues were approximately $641.6 million, up from $567 million in the year-ago quarter.

Becton, Dickinson reported first-quarter fiscal 2018 adjusted earnings per share of $2.48, up 3.9% at constant currency. Revenues totaled $3.08 billion, up 3.7% at constant currency.

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