Chemed Corporation Reports Strong Fourth Quarter Earnings Performance

Chemed Corporation (CHE) has announced its fourth-quarter 2024 adjusted earnings per share (EPS) of $6.83, reflecting a year-over-year increase of 3.5%. This figure exceeded the Zacks Consensus Estimate by 0.5%.

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The company also reported a GAAP EPS of $6.02, which is up 2% from the previous year. For the full year, Chemed’s adjusted EPS reached $23.13, representing a 13.9% increase from the previous year.

Improved Revenue Performance

In the fourth quarter, Chemed’s revenues increased by 9.2% year over year, reaching $640 million. This result surpassed the Zacks Consensus Estimate by 1.7%. For the full year, revenues totaled $2.43 billion, marking a 7.4% rise from 2023.

Following the earnings announcement on February 26, CHE’s stock price surged by 7.3%, closing at $586.12.

Segment Analysis

Chemed operates primarily through two wholly owned subsidiaries: VITAS, which provides end-of-life care, and Roto-Rooter, known for plumbing and drain cleaning services.

VITAS

In the fourth quarter, VITAS reported net patient revenues of $411 million, reflecting a year-over-year increase of 17.4%. This growth was driven by a 14.6% increase in days of care and a nearly 3.5% rise in the weighted average Medicare reimbursement rate.

Chemed Corporation Price, Consensus and EPS Surprise

Chemed Corporation price-consensus-eps-surprise-chart | Chemed Corporation Quote

On April 17, 2024, VITAS finalized its acquisition of the hospice assets and an assisted living facility from Covenant Health and Community Services, Inc. (Covenant Health), which reported revenues of approximately $11-$12 million for the quarter.

Roto-Rooter

Roto-Rooter reported sales of $229 million for the segment, a 2.9% decline from the previous year. Year-over-year branch commercial revenues increased marginally by 0.4%. The breakdown includes a 0.2% rise in drain cleaning revenues while plumbing saw a decline of 9.6%. However, excavation revenues rose by 7.6%, and water restoration revenues increased significantly by 19.8%. In contrast, total residential revenues declined by 2%, affected by a drop in various service areas.

Margin Performance Analysis

Chemed’s gross profit for the fourth quarter rose by 2.9% to $234.1 million. However, the gross margin contracted by 226 basis points (bps) to 36.6%, attributed to a 13.3% increase in the cost of services and goods sold. SG&A expenses increased to $104 million, up 3.8% year over year. Adjusted operating profit rose by 2.1% from the prior year to $129.8 million, although the adjusted operating margin contracted by 141 bps to 20.3% during the quarter.

Liquidity and Capital Structure

Chemed ended the fourth quarter with cash and cash equivalents of $178.4 million, down from $264 million at the end of 2023. Importantly, the company reported no current or long-term debt. The cumulative net cash from operating activities reached $417.5 million compared to $330.3 million in the previous year. Additionally, the company repurchased 388,235 shares for a total of $57.8 million, translating to a cost of $548.1 per share. As of December 31, 2024, Chemed has around $255.3 million remaining for share repurchases under its authorization. The company has a proven dividend-paying history, with a five-year annualized dividend growth rate of 7.7%.

Guidance for 2025

Looking ahead, for 2025, Chemed anticipates revenues from VITAS (prior to Medicare Cap) to rise between 10.5% and 11.3% compared to 2024 levels. The Zacks Consensus Estimate for total revenues is projected at $2.57 billion, reflecting an expected 5.8% year-over-year growth. For full-year 2024, the adjusted EPS is expected to range between $24.95 and $25.45, with a Zacks Consensus Estimate at $25.10, signifying an 8.5% growth compared to the adjusted figure in 2024.

Conclusion on CHE

Chemed’s fourth-quarter 2024 performance showcased better-than-expected earnings and revenues, primarily driven by VITAS’s solid performance, further enhanced by the Covenant Health acquisition. Meanwhile, the Roto-Rooter segment benefited from increased water restoration revenues as conversion rates improved at previously underperforming branches. Nonetheless, the observed margin contractions are concerning. VITAS’s growth in 2025 may face challenges from potential Medicare Cap limitations that could impact certain programs.

CHE’s Zacks Rank and Other Recommendations

Currently, Chemed holds a Zacks Rank #3 (Hold). In the broader medical space, other better-ranked stocks include ResMed (RMD), Cardinal Health (CAH), and Insulet (PODD).

ResMed posted a second-quarter fiscal 2025 adjusted EPS of $2.43, exceeding the Zacks Consensus Estimate by 5.6%. Revenues of $1.28 billion also surpassed the expectation by 1.6%. Currently, RMD holds a Zacks Rank #2 (Buy). The company has an estimated fiscal 2025 earnings growth rate of 21.9%, compared to the industry’s 13.2%. Notably, RMD consistently exceeded earnings estimates in the past four quarters, with an average surprise of 6.9%.

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