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Fresenius Misses Both Lines in 3Q - Analyst Blog

By: Zacks.com
Posted: 11/12/2012 8:00:00 AM
Referenced Stocks: DVA;FMS

World's largest dialysis company Fresenius Medical Care ( FMS ) announced third quarter 2012 earnings per ordinary share of 88 cents which surpassed the year-ago earnings of 92 cents per ordinary share. The Zacks Consensus Estimate was 97 cents for the reported quarter.

Net income (including investment gain) attributable to the company improved 3% year over year to $270 million in the quarter.

Quarter in Detail

Net revenues edged up 7% (up 11% in terms of constant currency) year over year to $3,418 million, trailing the Zacks Consensus Estimate of $3,576 million. Organic revenue growth was 4% on a global basis.

On a geographic basis, revenues from the North American markets soared 13% to $2,249 million in the quarter while overseas revenues decreased 2% (up 7% in terms of constant currency) to $1,163 million.

Dialysis services revenues increased 10% (up 12% in terms of constant currency) year over year to $2,605 million with U.S. sales spurting 15% year over year to $2,047 million and international sales descending 4% (up 6% in terms of constant currency) year over year to $558 million. Average revenue per treatment for U.S. clinics grew to $349 from $345 a year ago.

Consolidated dialysis product revenues declined 1% (up 7% in terms of constant currency) year over year to $813 million. Revenues from this segment improved 2% after accounting for the Liberty acquisition. Dialysis product sales in the U.S. market decreased 1% to $202 million. International dialysis product sales also decreased 1% (up 9% in terms of constant currency) to $605 million.

Operating Statistics

Fresenius operated a network of 3,135 dialysis clinics (up 9% year over year) across North America and the overseas markets, as of September 30, 2012. The number of clinics increased 12% in North America while offshore dialysis clinics increased 4% year over year.

It has provided dialysis treatment to 256,521 patients (up 12% year over year) on a global scale, as of September 30, 2012. Patients in North America increased 16% whereas number of patients in international markets ascended 6% year over year.

The company provided 28.6 million dialysis treatments (up 12% year over year) globally, as of September 30, 2012. Fresenius' North American franchise soared 12% while the international segment improved 13% year over year.

Margins

Operating margin declined to 16.6% from 16.8% in the prior year quarter. In North America, operating margin was down marginally to 18.7% from 18.8% a year ago while operating margin for overseas markets decreased to 16.8% from 17.3% in the year-ago period.

Cash Flows

Fresenius concluded the third quarter with cash (from operations) of $535 million (15.7% of sales) representing 16% year over year surge. The cash flow generation was helped by improvement in inventory and other working capital items.

The company spent $164 million on capital expenditures in the quarter. Free cash flow, prior to acquisitions, was $371 million versus $313 million a year ago. The company spent $37 million on acquisitions and investments, net of divestitures. Free cash flow, post acquisitions, divestures and investments, was $334 million compared with $264 million in the prior-year period.

Guidance Reaffirmed

Fresenius reaffirmed its forecast for 2012. The company continues to envision sales of roughly $14 billion for 2012. Expected net income for 2012 remains unchanged at $1.3 billion and net income (attributable to shareholders) is pegged at $1.14 billion. Net income excludes gain on investments of about $140 million for the first half of the year. The company expects capital expenditure of roughly $700 million and plans to spend around $1.8 billion on acquisitions.

Fresenius 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. Fresenius also competes with Baxter International ( BAX ) in certain niches such as the peritoneal dialysis products.

The company continues to register strong operating results in the North American as well as overseas markets. The integration of recent acquisitions is also expected to be accretive to Fresenius' earnings in the near term. However, the contagion of economic problems remains a matter of concern.

The stock carries a Zacks #4 Rank, which translates into a short-term Sell rating.



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