Fresenius Medical Care (FMS) reported adjusted earnings of 56 cents per American Depositary Share (ADS) for the fourth quarter of 2014, topping the Zacks Consensus Estimate by 7 cents. The bottom line, however, declined by a couple of cents from the year-ago quarter.
Quarter Details
Revenues increased 11.6% (15% at constant currency) on a year-over-year basis to $4.32 billion, handily beating the Zacks Consensus Estimate of $4.29 billion.
Healthcare revenues grew 15% (18% at constant currency) to $3.32 billion, with significant contribution from the North American market.
Dialysis product revenues increased 3% (8% at constant currency) from the year-ago quarter to $998 million.
By geography, North America revenues rose 15% year over year to $2.88 billion.
International revenues increased 5% (15% at constant currency) on a year-over-year basis to $1.42 billion.
Gross margin contracted 100 basis points (bps) on a year-over-year basis to 32.6%.
Selling, general and administrative expenses (SG&A), as percentage of sales, expanded 70 bps year over year to 16.8%. On the other hand, research and development (R&D) expenses, as percentage of sales, contracted 10 bps to 0.7%.
Operating margin contracted 170 bps on a year-over-year basis to 15.3%. The decline may be attributed to lower North America and International margins. The rise in operating costs also had a negative impact on the margin.
Financial Position
Net cash provided by operating activities was $588 million, compared with $712 million in the previous quarter. Free cash flow was $306 million, compared to $488 million in the last quarter.
Guidance
For full year 2015, Fresenius Medical expects revenues to grow at a rate of 5–7% (10–12% at constant currency). Net income attributable to shareholders of the company is expected to increase 0–5% in 2015.
Fresenius Medical expects to spend around $1.0 billion on capital expenditures and around $400 million on acquisitions in 2015. Management anticipates debt/EBITDA ratio of around 3.0 by the end of the year.
For full year 2016, the company expects revenues to grow in the range of 9–12% and net income attributable to shareholders of the company to increase 15–20%.
As per the company’s long-term target for 2020, Fresenius Medical expects revenues to grow at an average annual growth rate of approximately 10% and net income attributable to shareholders to be in the high single digits.
Our Take
We are impressed with the better-than-expected fourth quarter results at Fresenius Medical. Earnings and revenues both managed to beat the respective Zacks Consensus Estimate.
The company’s dialyzer business continues to perform well, which is a key positive in our opinion. Moreover, a positive growth outlook and a proposal for an increase in dividend will bode well for investors’ confidence, going forward.
However, the company is witnessing weakness in some markets, especially Eastern Europe and Russia. We are also partly concerned with the rising manufacturing costs, which has kept margins under pressure.
Zacks Rank
Currently, Fresenius Medical carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical sector are Affymetrix (AFFX), Luminex (LMNX) and Abaxis (ABAX). All the three stocks sport a Zacks Rank #1 (Strong Buy).
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