Fresenius' 4Q EPS Meets, Sales Miss - Analyst Blog


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Fresenius Medical Care ( FMS ), the world's largest dialysis company, posted fourth-quarter 2011 earnings per share of $1.02, in line with the Zacks Consensus Estimate while exceeding the year-ago earnings of 90 cents. Net income (attributable to the company) shot up 14% year over year to $310 million on the back of higher revenues.

For the year, earnings of $3.54 a share missed the Zacks Consensus Estimate by a penny while surpassing the year-ago earnings of $3.25. Profit (attributable to the company) climbed 9% year over year to $1,071 million.

Revenue Analysis

Net revenues rose 5% (up 6% at constant currency) year over year to $3,323 million, but missed the Zacks Consensus Estimate of $3,382 million. Organic revenue growth was 3% on a global basis. For the full year, revenues rose 6% year over year to $12,795 million, also below the Zacks Consensus Estimate of $12,871 million.

Geographically, revenues from the North American markets crept up 1% to $2,096 million in the fourth quarter while overseas revenues jumped 12% (up 14% at constant currency) to $1,223 million.

International sales were boosted by double-digit growth in dialysis product and services revenues while domestic revenues were hurt by the negative impact of the implementation of the new Medicare end-stage renal disease prospective payment system (the "bundled rate" system), which resulted in lower reimbursement.

Dialysis services revenues nudged up 3% year over year to $2,435 million with domestic and international sales rising 1% and 13%, respectively, to $1,882 million and $553 million. Average revenue per treatment for domestic clinics declined to $351 from $355 a year ago, impacted by reduced Medicare reimbursement.

Consolidated dialysis product revenues spiked 9% year over year to $888 million. Dialysis product sales in domestic markets grew just 2% to $214 million as higher sales of hemodialysis products were, in part, neutralized by pricing cuts on renal drugs.

International dialysis product sales jumped 11% to $669 million, boosted by higher sales of peritoneal dialysis products, dialyzers, dialysis machines and products for acute care treatments.

Operating Statistics

Fresenius operated a network of 2,898 dialysis clinics (up 6% year over year) across North America and the overseas markets at the end of 2011. It has provided dialysis treatment to 233,156 patients (up 9% year over year) worldwide as of December 31, 2011. During the year, the company provided roughly 34.39 million dialysis treatments globally, up 9% year over year.


Operating margin rose to 17.7% from 17% a year ago. In North America, operating margin climbed to 19.1% from 17.9% driven by favorable pharma costs. Operating margin for overseas markets increased to 18.7% from 18% helped by favorable currency exchange movements and growth in Asia-Pacific.

Cash Flows

Fresenius generated operating cash flows of $497 million (roughly 15% of sales) in the fourth quarter, a 46% year-over-year surge. The company spent $191 million on capital expenditure in the quarter. Free cash flows (prior to acquisitions) soared 77% year over year to $306 million. Fresenius spent $1,775 million on acquisitions in 2011.


Fresenius, on October 1, 2011, closed its acquisition of U.S. based American Access Care Holdings for $385 million. American Access runs outpatient clinics, which serve the vascular access needs of dialysis patients. The acquisition is expected to contribute roughly $175 million in annual sales.  Fresenius is also on track to close its $1.7 billion acquisition (expected in first-quarter 2012) of leading dialysis company Liberty Dialysis Holdings Inc.


Moving ahead, Fresenius envisions sales of roughly $14 billion for 2012, taking into account certain accounting changes. This represents a roughly 11% increase from the comparable sales of 2011. The current Zacks Consensus Estimate for 2012 is $14,359 million.     

Net income for the year is expected at $1.3 billion and net income (attributable to shareholders) is pegged at $1.14 billion. Operating margin is expected to be around 16.9%. The company expects capital expenditure of roughly $700 million and expects to spend around $1.8 billion on acquisitions.

Fresenius Medical, which employs 79,159 people globally, is the largest provider of products and services for patients undergoing dialysis treatment on the planet. The company's principal competitor in the U.S. is DaVita Inc. ( DVA ), which provides dialysis services for patients suffering from chronic kidney failure or end stage renal disease.

DAVITA INC ( DVA ): Free Stock Analysis Report
FRESENIUS MED ( FMS ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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