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Chemed (CHE) Q4 Earnings Beat Estimates, Gross Margin Falls

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Chemed Corporation (CHE - Free Report) delivered fourth-quarter 2018 adjusted earnings per share (EPS) of $3.35, up 44.3% year over year. The adjusted number also surpassed the Zacks Consensus Estimate of $3.27 by 2.4%.

Reported EPS came in at $3.26, up 0.3% year over year.

For the full year, adjusted EPS was $11.93, reflecting an increase of 41.5% from the year-ago period.

Revenues in the reported quarter increased 6.8% year over year to $457.5 million. For the full year, the company reported revenues of $1.78 billion, up 6.6% from the year-ago period.

Segmental details

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

Chemed Corporation Price, Consensus and EPS Surprise


Chemed Corporation Price, Consensus and EPS Surprise | Chemed Corporation Quote

In the fourth quarter, net revenues at VITAS totaled $306.9 million, reflecting an increase of 4.9% year over year. The top line was driven by 1.1% growth in geographically weighted average Medicare reimbursement rate and a 7.3% rise in average daily census. A Medicare Cap liability partially offset this revenue improvement by 0.4%. The revenue strength was partially offset by acuity mix shift, which negatively impacted revenues by 1.0%.

Roto-Rooter reported sales of $150.5 million in the fourth quarter rose 10.6% year over year. According to the company, revenues from water restoration increased 9.7% year over year to $24.3 million. The upside was driven by 12% year-over-year growth in commercial revenues and 11.4% rise in residential revenues.

Margin details

Gross profit increased 5.5% year over year to $144.4 million in the fourth quarter of 2018. However, gross margin contracted 37 basis points (bps) year over year to 31.5%.  Adjusted operating profit saw growth of 20.7% from the year-ago period to $78.7 million. This was on account of declining operating costs. Accordingly, the operating margin expanded 197 bps to 17.2%.

Operational update

Chemed exited 2018 with total cash and cash equivalents of $4.83 million, showing a significant decline from $11.1 million at the end of 2017. The company had total debt of $89.2 million at the end of 2018, which again reflected a decline from $101.2 million at the end of 2017. During the fourth quarter, the company repurchased shares worth $36.9 million.

At the end of 2018, net cash provided by operating activities was $287.1 million, compared with $162.5 million at 2017-end.

Guidance for 2019

Chemed has provided guidance for 2019.The company projects VITAS Healthcare revenue growth (prior to Medicare Cap) within 5.5-6%. In 2019, admissions within this segment are anticipated to improve 3-4% and Average Daily Census is predicted to rise 4-5%. Medicare Cap billing limitations are expected to cap around $10 million.

The Roto-Rooter business is likely to register revenue growth of 13-14% in the year. The view was backed by a 2% increase in job pricing, consistent growth in core plumbing plus drain cleaning services as well as revenue generation from water restoration services.

The Zacks Consensus Estimate of 2019 revenues is pegged at $1.87 billion.

Adjusted EPS for 2019 has been projected in the range of $12.65-$12.85. The Zacks Consensus Estimate of $12.64 is below the low end of the guidance provided by the company.

Our Take

Chemed exited 2018 on a promising note. The company registered strong year-over-year growth in earnings and revenues. It is optimistic to note that the company witnessed solid revenue growth across its key subsidiaries. The expansion in adjusted operating margin buoys optimism. However, uncertainties are likely to arise from factors like possible changes in regulations governing the hospice care or plumbing and drain cleaning industries, periodic changes in reimbursement levels and procedures under Medicare and Medicaid program.

Zacks Rank & Key Picks

Chemed carries a Zacks Rank #3 (Hold). A few better-ranked medical stocks are Abbott Laboratories (ABT - Free Report) , AngioDynamics Inc. (ANGO - Free Report) and CONMED, Corp. (CNMD - Free Report) .

Abbott reported fourth-quarter 2018 adjusted EPS of 81 cents, in line with the Zacks Consensus Estimate. Revenues of $7.77 billion were below the Zacks Consensus Estimate of $7.79 billion. The stock has a Zacks Rank #2 (Buy).

AngioDynamics’ fiscal second-quarter adjusted EPS of 22 cents exceeded the Zacks Consensus Estimate by a penny. Revenues totaled $91.5 million, beating the consensus estimate by 2.9%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CONMED delivered fourth-quarter adjusted EPS of 73 cents, in line with the Zacks Consensus Estimate. Revenues of $242.4 million beat the Zacks Consensus Estimate of $229.2 million. The stock carries a Zacks Rank of 2.

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