Fresenius Medical Q3 Earnings Beat Estimates, Operating Margin Rises
Zacks Equity Research
5 min read
Fresenius Medical Care AG & Co. FMS reported third-quarter 2024 adjusted earnings per share (EPS) of 45 cents, which surpassed the Zacks Consensus Estimate by 7.1%. The bottom line improved 45.2% year over year.
During the reported quarter, the company’s closed divestments included clinic operations in Curacao, Guatemala and Peru.
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Revenue Detail
Revenues of $5.23 billion (EUR 4,760 million) missed the Zacks Consensus Estimate by 2.4%. The company’s reported revenues were down 3.6% year over year and 2.4% at constant currency (cc). However, revenues were up 1.9% organically.
Per management, the top line was hurt by divestitures realized through the third quarter as it negatively impacted growth by 230 basis points.
Segmental Details
Fresenius Medical implemented a new operating model during the first quarter and started reporting under two new segments, Care Delivery and Care Enablement.
Care Delivery
The segment’s revenues were down 5.1% on a year-over-year basis and 4.2% at cc but gained 1% on an organic basis.
Revenues in the U.S. markets declined 1.3% and gained 0.4% on an organic basis. The top line was flat year over year at cc. The decline was due to the impact of divestitures closed this year. However, organic sales were driven by value-based care business growth, higher reimbursement rates and a favorable payer mix.
Per management, during the third-quarter 2024, the U.S. same-market treatment growth improved sequentially. During the quarter under discussion, adjusted for the exit from less profitable acute care contracts (-0.2%), underlying the U.S. same market treatment growth returned to positive growth (+0.2%). However, effects from elevated mortality continued to weigh on the development.
International sales declined 21.6% reportedly and 20.9% at cc but gained 4.4% on an organic basis. The decline was due to divestments realized as part of the portfolio optimization plan and was partially offset by organic growth. The organic growth was supported by accelerated same-market treatment growth of 2.9% and higher reimbursement rates.
Care Enablement
The segment’s revenues increased 2.2% year over year reportedly and 4.2% at cc as well as organically. The growth was driven by solid volume development across all geographical regions. Also, the continued pricing momentum, excluding China, added to this growth.
Fresenius Medical Care AG & Co. KGaA Price, Consensus and EPS Surprise
Fresenius Medical Care AG & Co. KGaA Price, Consensus and EPS Surprise
Fresenius Medical Care AG & Co. KGaA price-consensus-eps-surprise-chart | Fresenius Medical Care AG & Co. KGaA Quote
Margin Analysis
Operating income rose 42.7% from the prior-year quarter’s level. The metric was up 42.8% at cc. Operating margin was 9.7%, up 310 bps from the year-ago quarter’s reported actuals.
2024 Guidance
Fresenius Medical maintained its outlook for 2024 revenues while revising its outlook for operating income. The company continues to expect revenues to grow at a low-to-mid single-digit percentage rate. The operating income is now estimated to grow at 16-18% as compared to the previous outlook of mid- to high-teen percentage rate growth.
Our Take
FMS exited the third quarter on a mixed note, with its earnings reflecting strong organic growth on the back of improving treatment volumes as well as a stabilizing labor environment in the United States. Continued improvement in these two key factors should be beneficial for the company in the rest of 2024. Overall pricing momentum also supported growth in the Care Enablement segment. However, the effects of elevated mortality will likely continue to hurt sales.
Meanwhile, FMS’ newly implemented operating model led to operational improvements. The bottom line was hurt by inflationary cost increases in energy, material and personnel. These headwinds are likely to improve over the year, which is also reflected in the company’s operating outlook. FMS expects to realize further improvements in its operational performance and transformation efforts in the fourth quarter of fiscal 2024.
In the third quarter, FMS generated 64 million euros in savings by implementing initiatives under its FME25 transformation program. FMS delivered EUR 173 in million additional sustainable savings year-to-date, thus getting well ahead of the targeted EUR 100 to 150 million by year-end 2024. Fresenius Medical expects to save 650 million euros by the end of 2025. However, the portfolio optimization plan is estimated to negatively impact operating income by around EUR 250 million for the full-year 2024.
The company’s continued divestment of its noncore and dilutive assets seem promising, as it will help focus on its core and growing categories as well as boost its cash resources.
FMS’ Zacks Rank & Other Stocks to Consider
FMS carries a Zacks Rank #2 (Buy) at present.
Some other top-ranked stocks in the broader medical space are AngioDynamics ANGO, Quest Diagnostics DGX and RadNet RDNT. All three stocks carry a Zacks Rank #2. You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ANGO’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 31.71%.
AngioDynamics’ shares have lost 19.2% year to date against the industry’s 6.1% growth.
Quest Diagnostics has an estimated long-term growth rate of 6.8%. DGX's earnings surpassed estimates in each of the trailing four quarters, with the average being 3.3%.
Quest Diagnostics has gained 42% compared with the industry's 14.9% growth year to date.
RadNet’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 98.2%.
RDNT's shares have surged 93.7% year to date compared with the industry’s 14.8% growth.
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