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Fresenius Medical Earnings Lag, Revenues Beat Expectations - Analyst Blog

Fresenius Medical CareFMS reported adjusted earnings of 35 cents per American Depositary Share (ADS) in the first quarter of 2015, lower than the Zacks Consensus Estimate of 40 cents. The bottom line, however, increased by a penny from the year-ago quarter.

Quarter Details

Revenues increased 11.1% (17% at constant currency) on a year-over-year basis to $3.96 billion, handily beating the Zacks Consensus Estimate of $3.92 billion. Worldwide organic revenue growth was 7%.

Healthcare revenues grew 14% (18% at constant currency) to $3.18 billion, with significant contribution from the North American market. Dialysis product revenues remained unchanged at $778 million.

By geography, North America revenues rose 16% year over year to $2.77 billion. Organic revenue growth was 6%.

International revenues increased 2% (18% at constant currency) on a year-over-year basis to $1.18 billion. Organic revenue growth was 10%.

Gross margin contracted 50 basis points (bps) on a year-over-year basis to 29.9%.

Selling, general and administrative expenses (SG&A), as percentage of sales, contracted 90 bps year over year to 16.5%. On the other hand, research and development (R&D) expenses, as percentage of sales, remained unchanged at 0.8%.

Operating margin contracted 290 bps on a year-over-year basis to 11.2%.

Net cash provided by operating activities was $447 million, compared with $588 million in the previous quarter. Free cash flow was $250 million, compared to $306 million in the last quarter.

Guidance

Fresenius re-affirmed its guidance. For 2015, the company expects revenues to grow at 5-7% (10-12% at constant currency). Net income attributable to shareholders of the company is anticipated to increase 0-5% in 2015.

The company expects to spend around $1.0 billion on capital expenditures and around $400 million on acquisitions in 2015. The debt/EBITDA ratio is expected to be around 3.00 by the end of this year.

For 2016, revenues are expected to increase 9-12% while net income attributable to shareholders are estimated to grow by 15-20%.

The company expects revenues to grow at an average annual growth rate of approximately 10% through 2020 and net income attributable to shareholders in high single digits.

Our Take

Fresenius 's organic growth is a key positive in our opinion. A strong machine performance in North America and particularly in Asia Pacific coupled with an encouraging pharma business in North America is expected to help the company, going forward.

Moreover, a positive long-term growth outlook will bode well for investors' confidence, going forward. We are also impressed with the company's continued investments in Care Co-ordination. However, declining margins remain a major headwind.

Zacks Rank

Currently, Fresenius Medical has a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector include IRadimed Corp. IRMD , RTI Surgical RTIX and TriVascular Technologies TRIV . All three stocks carry a Zacks Rank #1 (Strong Buy).

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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.


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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