Fresenius Medical Care
) announced second quarter 2013 adjusted earnings of 44 cents per
American Depositary Share (ADS), which was lower than the Zacks
Consensus Estimate of 46 cents per ADS. Adjusted earnings exclude
one-time items such as acquisition-related expenses associated
with the buyout of Liberty Dialysis Holdings and impact from
sequestration implemented from Apr 2013. Adjusted earnings
remained flat year over year.
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Net income attributable to the company dropped 9% year over year
to $263 million in the quarter.
Quarter in Detail
Net revenue grew 5% (up 6% in terms of constant currency) year
over year to $3,613 million in the reported quarter. Revenues
marginally missed the Zacks Consensus Estimate of $3,615 million.
Organic sales growth was 5% on a global basis.
On a geographic basis, revenues from the North American markets
rose 6% to $2,375 million in the quarter while overseas revenues
increased 5% (up 6% in terms of constant currency) to $1,228
Dialysis services revenues increased 5% (up 6% in terms of
constant currency) year over year to $2,743 million with U.S.
sales spurting 6% year over year to $2,157 million and
international sales ascending 4% (up 7% in terms of constant
currency) year over year to $586 million.
Consolidated dialysis product revenues increased 6% (up 5% in
terms of constant currency) year over year to $870 million.
Dialysis product sales in the U.S. market rose 6% to $218
million. International dialysis product sales increased 5% (up 5%
in terms of constant currency) to $642 million.
Fresenius operated a network of 3,212 dialysis clinics (up 3%
year over year) across North America and overseas markets, as of
Jun 30, 2013. The number of clinics in North America and offshore
dialysis clinics both increased 3% year over year.
Fresenius provided dialysis treatment to 264,290 patients (up 3%
year over year) on a global scale, as of Jun 30, 2013. Patients
in North America increased 3% whereas number of patients in
international markets increased 4% year over year.
The company provided 19.7 million dialysis treatments (up 5% year
over year) globally, as of Jun 30, 2013. Fresenius' North
American franchise rose 5% while the international segment
improved 3% year over year.
Operating margin dropped to 15.1% from 17.2% in the prior year
quarter. In North America, operating margin was lower at 10.9%
from 12.6% a year ago while operating margin for overseas markets
decreased to 5.8% from 6.0% in the year-ago period. On an
adjusted basis, operating margin was 15.4%, down from 16.6% in
the prior year quarter.
Fresenius concluded the second quarter with cash from operations
of $525 million (14.5% of sales), representing an increase of 16%
year over year.
The company spent $173 million on capital expenditure in the
quarter. Free cash flow, prior to acquisitions, was $352 million
versus $300 million a year ago. The company spent $13 million on
acquisitions and investments, net of divestitures. Free cash
flow, post acquisitions, divestitures and investments, was $339
million compared with $306 million in the prior-year period.
Fresenius initiated a share repurchase program on May 20, 2013,
which is expected to end in the third quarter of 2013. The board
has authorized to buy back up to $500 million of its common
stock. As of Jun 30, 2013, the company repurchased 3.58 million
shares worth $249 million.
Fresenius reaffirmed its revenue forecast for 2013. The company
envisions sales of over $14,600 million for 2013, up 6% year over
year. It raised the upper end of its net income guidance (for
shareholders) for 2013 to $1,100-$1,500 million from
$1,100-$1,200 million. The company expects capital expenditure of
roughly $700 million and plans to spend around $500 million
(earlier $300 million) on acquisitions. The guidance assumes the
impact from sequestration.
We are disappointed with Fresenius' second quarter results, which
missed the Zacks Consensus Estimate on both fronts. Moderate
sales growth was dampened by declining margins. Macroeconomic
issues such as a budget cut in the U.S. (sequestration) is likely
to add more pressure on the company's margins.
The company's principal competitor in the U.S. is
DaVita HealthCare Partners
), which provides dialysis services for patients suffering from
chronic kidney failure or end stage renal disease. Fresenius also
The stock carries a Zacks Rank #4 (Sell). Right now,
) looks attractive with a Zacks Rank #2 (Buy).