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Fresenius Medical (FMS) Misses on Q1 Earnings, Lowers View

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Fresenius Medical Care (FMS - Free Report) posted adjusted earnings of 49 cents per American Depositary Share (ADS) in the first quarter of 2018, missing the Zacks Consensus Estimate by 30%. Earnings per ADS declined 7.5% on a year-over-year basis.

In the quarter under review, revenues inched up 0.8% year over year to $4.89 billion but missed the Zacks Consensus Estimate of $5.52 billion. At constant currency (cc), revenues declined 1% year over year. Revenues in the first quarter of 2018 witnessed a 12% negative impact resulting from foreign currency translation.

The stock has a Zacks Rank #5 (Strong Sell). Fresenius Medical has outperformed its industry in the past year. The company’s shares have returned 7.4%, comparing favorably with the industry's decline of 3.2%.

Fresenius Medical Care Price, Consensus and EPS Surprise

 

Segmental Details

Health Care Services revenues declined 3% at cc on a year-over-year basis. The segment witnessed organic growth of 2% year over year.

Health Care Products revenues increased 6% at cc and organically.

Dialysis treatments increased 3% in the quarter under review, courtesy of strong contributions from same-market treatments and synergies from acquisitions.

Geographical Growth

North America Revenues

By geography, North America revenues declined 5% at cc on a year-over-year basis and accounted for 70% of total revenues.

Health Care Products revenues inched up 1% at cc on higher sales of renal pharmaceuticals, peritoneal dialysis products, hemodialysis solutions and concentrates. However, this was partially offset by lower sales of machines and dialyzers.

By the end of the quarter, the company treated 197,339 patients in 2,419 clinics in North America, up 4% year over year. This was fueled by higher dialysis treatments and an increase in U.S. revenues per treatment.

The Dialysis Care business grew 5% at cc on a year-over-year basis in the region. Meanwhile, the Care Coordination segment declined 14% at cc, driven by the shift of calcimimetic drugs into the clinical environment.

Unfavorable foreign exchange rates partially offset solid growth in the region.

EMEA Revenues

Revenues in the region increased 6% on a year-over-year basis at cc. Both Health Care Services and Health Care Products revenues from the EMEA segment increased 6% at cc on a year-over-year basis.

Dialysis Products revenues grew 7% at cc, courtesy of higher sales of products for acute care treatments, machines, peritoneal dialysis products and renal pharmaceuticals.

The Health Care Services segment was primarily driven by growth in same-market treatments. However, the same was partially offset by a decline in organic revenues per treatment. The growth in Dialysis Products revenues in the region was boosted by higher sales of products for acute care, products for peritoneal dialysis and machines. However, this was partially offset by lower sales of dialyzers.

By the end of the quarter, the company had 63,114 patients being treated at 754 clinics in the EMEA region, up 5% year over year. Dialysis treatments increased 5% on a year-over-year basis in the region.

Asia-Pacific Revenues

Revenues from Asia Pacific grew 14% at cc on a year-over-year basis. Net Health Care Services Unit increased 9% at cc. The Health Care Services segment in the Asia-Pacific region was supported by the acquisition of Cura Group in Australia.

Meanwhile, Health Care Products Business increased 8% at cc on a year-over-year basis. Growth in the segment was mainly driven by higher sales of chronic hemodialysis products and products for acute care treatments.

Dialysis treatments in the region grew 2% in the region.

Latin America Revenues

Revenues in the region increased 17% at cc on a year-over-year basis. Notably, Health Care Products increased 25% year over year.

The company treated 31,606 patients at 232 clinics in Latin America, up 5% year over year. Dialysis treatments increased 4% in the region. Solid sales of machines as well as disposables and dialysis treatments drove revenues in Latin America.

Margin Analysis

Gross profit declined 24.4% in the reported quarter, down 15.7% at cc.

As a percentage of revenues, gross margins declined 470 basis points (bps) to 30.3% of revenues in the quarter.

Guidance

For 2018, Fresenius Medical estimates revenue growth in the band of 5% and 7% at cc, lower than the previous guidance of 8% at cc. The Zacks Consensus Estimate for revenues is currently pegged at $21.7 billion, reflecting a rise of 8.1% year over year.         

Net income attributable to shareholders is likely to increase around 13-15%.

In Conclusion

Fresenius Medical exited the first quarter of 2018 on a dull note, missing the Zacks Consensus Estimate on both the counts. Dull performance in North America has been a major dampener. The company continues to face significant foreign-exchange headwinds. Further, higher costs related to dialysis services and peritoneal dialysis product business in China are likely to put margins under pressure. Fresenius Medical faces a highly regulated environment in almost every country in which it operates. The company has to fulfill specific legal requirements that include tough antitrust regulations.

The company reconfirmed the mid-term outlook of its ‘Growth Strategy 2020’, under which it aims to boost revenues to $28 billion by 2020, corresponding to an average annual growth rate of around 10%. Strong performance in the Health Care Products segment holds promise. A wide range of dialysis products are major catalysts for the company.

Q1 Earnings of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which reported solid earnings this season, are Baxter International Inc. (BAX - Free Report) , Varian Medical Systems, Inc. (VAR - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) .

While Intuitive Surgical and Varian sport a Zacks Rank #1 (Strong Buy), Baxter carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Baxter reported first-quarter 2018 adjusted earnings per share of 70 cents, which beat the Zacks Consensus Estimate by 12.9% and improved from the year-ago quarter’s figure of 58 cents.

Varian reported second-quarter fiscal 2018 adjusted earnings of $1.15 per share, which beat the Zacks Consensus Estimate of $1.06. Adjusted earnings improved 27.8% on a year-over-year basis.

Intuitive Surgical reported adjusted earnings of $2.44 per share, which surpassed the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, which beat the Zacks Consensus Estimate by 10.6%.

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