Chemed (CHE) Q3 Earnings Surpass Estimates, Revenues Miss

Chemed Corporation (NYSE:CHE) reported third-quarter 2019 adjusted earnings per share (EPS) of $3.46, up 12.7% year over year. The figure beat the Zacks Consensus Estimate by 4.5%.

Its reported EPS was $3.56, up 16.3% year over year.

Revenues in the reported quarter improved 8.2% year over year to $480.6 million but missed the Zacks Consensus Estimate by 0.8%.

Chemed Corporation Price, Consensus and EPS Surprise

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).

In the third quarter, net revenues at VITAS totaled $321.7 million, reflecting rise of 6.6% year over year. The top-line improvement was driven by 0.5% growth in geographically weighted average Medicare reimbursement rate and 6.3% rise in days-of-care. A reduction in Medicare Cap liability boosted revenue improvement by 0.2%. Revenue growth was impacted by acuity mix shift, fluctuations in net room and board and contractual adjustments, the combination of which led to a revenue decline of 0.4% from the prior-year quarter.

Roto-Rooter reported sales of $158.9 million in the third quarter, reflecting growth of 11.6% year over year. Per the company, revenues from water restoration grew 3% year over year to $25.7 million. The upside was driven by 19.3% year-over-year growth in commercial revenues and 6.5% rise in residential revenues.

Margin in Detail

Gross profit rose 9.8% year over year to $152.4 million in the third quarter of 2019. Gross margin expanded 46 basis points (bps) year over year to 31.7%. Adjusted operating profit grew 5.5% from the year-ago period to $75.6 million. However, the adjusted operating margin contracted 41 bps to 15.8% on 14.4% escalation in adjusted operating expenses.

Operational Update

Chemed exited the third quarter of 2019 with cash and cash equivalents of $9.1 million, a significant improvement from $3.3 million at the end of the second quarter. The company had long-term debt of $130 million at the end of the third quarter, which rose from $85 million at the end of the second quarter. During the third quarter, the company repurchased shares worth $125 million.

Year-to-date net cash provided by operating activities was $237.6 million compared with $230.6 million at the end of the year-ago period.

Our Take

Chemed exited the third quarter of 2019 on a mixed note, as earnings beat estimates, while revenues missed the same. It is encouraging to note that the company witnessed solid revenue growth across both key subsidiaries. Expansion in the gross margin during the quarter buoys optimism.

However, unfavorable acuity mix shift, fluctuations in net room and board and contractual adjustments dented the top line in the quarter.

Zacks Rank & Key Picks

Currently, Chemed carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space are ResMed, Inc (NYSE:RMD) , Edwards Lifesciences Corporation (NYSE:EW) and Thermo Fisher Scientific Inc (NYSE:TMO) .

ResMed, currently carrying a Zacks Rank #2, reported first-quarter fiscal 2020 adjusted EPS of 93 cents, surpassing the Zacks Consensus Estimate by 6.9%. Its revenues of $681.1 million outpaced the consensus mark by 3.7%.

Edwards Lifesciences, presently carrying a Zacks Rank #2, posted third-quarter 2019 adjusted EPS of $1.41, surpassing the Zacks Consensus Estimate by 15.6%. Its revenues totaled $1.09 billion, which surpassed the consensus estimate of $1.04 billion by 5.3%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, with a Zacks Rank #2, delivered third-quarter 2019 adjusted EPS of $2.94, beating the Zacks Consensus Estimate by 2.1%. Its revenues of $6.27 billion surpassed the Zacks Consensus Estimate by 1.3%.

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