CHE Stock Falls Despite Q1 Earnings & Revenue Beat, Gross Margin Declines

Chemed Corporation CHE reported first-quarter 2025 adjusted earnings per share (EPS) of $5.63, which rose 8.3% year over year. The figure surpassed the Zacks Consensus Estimate by 0.5%. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

The company’s GAAP EPS was $4.86, up 14.6% from last year’s reported figure.

CHE’s Q1 Revenues

Revenues in the reported quarter improved 9.8% year over year to $646.9 million. The metric topped the Zacks Consensus Estimate by 1.7%.

Despite a strong top and bottom-line performance, the stock fell 6.6% yesterday. This may reflect investors’ concern over the company’s gross margin contraction and the Roto-Rooter segment’s adjusted EBITDA decline. 

CHE’s Segmental Details 

Chemed operates through two wholly owned subsidiaries — VITAS (a major provider of end-of-life care) and Roto-Rooter (a leading commercial and residential plumbing plus drain cleaning service provider).

VITAS

In the first quarter, net patient revenues totaled $407.4 million, up 15.1% year over year.

The rise in revenues was primarily due to an 11.9% increase in days-of-care and a nearly 3.2% rise in the geographically weighted average Medicare reimbursement rate.

On April 17, 2024, VITAS completed its acquisition of the hospice assets and an assisted living facility of Covenant Health and Community Services, Inc. (Covenant Health). Covenant Health reported revenues of approximately $11-$12 million for the quarter.

Roto-Rooter

The segment reported sales of $239.5 million, up 1.8% year over year.

Total Roto-Rooter branch commercial revenues edged up 7.3% year over year. This aggregate commercial revenue change consisted of a 4.3% fall in plumbing, a 38% rise in excavation and a 14% increase in water restoration.

Total Roto-Rooter branch residential revenues decreased 1.7% year over year. This aggregate residential revenue change consisted of a 5.5% decline in drain cleaning, a 4.2% drop in plumbing, a 3% rise in excavation, and a 12.5% increase in water restoration.

CHE’s Margin Performance

The gross profit increased 6% year over year to $216.4 million in the first quarter. The gross margin contracted 119 basis points (bps) year over year to 33.5% due to an 11.8% increase in the cost of services provided and goods sold. 

SG&A expenses fell 8.9% year over year to $105.6 million. The adjusted operating profit jumped 25.6% from the year-ago period’s level to $110.8 million. The adjusted operating margin expanded 216 bps to 17.1% during the quarter.

CHE’s Liquidity & Capital Structure

Chemed exited the first quarter of 2025 with cash and cash equivalents of $173.9 million compared with $178.4 million at the end of the fourth quarter of 2024. The company did not have any current or long-term debt at the end of the reported quarter.

The net cash provided by operating activities was $32.7 million compared with $84.5 million in the year-ago period.

Chemed Corporation Price, Consensus and EPS Surprise

Chemed Corporation price-consensus-eps-surprise-chart | Chemed Corporation Quote

The company repurchased 50,000 shares of Chemed stock for $29.8 million, which equates to a cost of $595.1 per share. As of March 31, 2025, there was approximately $225.6 million of remaining share repurchase authorization under its plan.

Chemed has a consistent dividend-paying history, with five-year annualized dividend growth of 8.41%.

Chemed Reiterates 2025 Guidance

For 2025, the company expects revenues from VITAS, prior to Medicare Cap, to increase 10.5% to 11.3% from the 2024 levels. The Roto-Rooter segment is forecasted to achieve revenue growth of 2.4% to 3.0%. 

The Zacks Consensus Estimate for total revenues is pegged at $2.63 billion, which indicates an 8% improvement year over year.

For full-year 2025, the company now expects the adjusted EPS to be in the range of $24.95-$25.45. The Zacks Consensus Estimate for the metric is pegged at $25.17, which implies 8.8% growth over the 2024 adjusted figure.

Our Take on CHE

Chemed delivered better-than-expected earnings and revenues for the first quarter of 2025. Despite Medicare Cap limitations in certain of Chemed’s programs, VITAS achieved strong operating performance. The company’s new programs in the Florida counties of Pasco and Marion are also a key part of mitigating Medicare Cap issues. 

Roto-Rooter experienced modest growth in gross branch revenues but faced challenges with a decline in adjusted EBITDA. The contraction of gross margin in the quarter is discouraging. 

CHE’s Zacks Rank and Key Picks

Chemed currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader medical space are AngioDynamics ANGO, Veeva Systems VEEV and Masimo MASI. 

AngioDynamics, currently sporting a Zacks Rank #1 (Strong Buy), reported third-quarter fiscal 2025 adjusted EPS of 3 cents, which beat the Zacks Consensus Estimate of a loss of 13 cents.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Revenues of $72 million beat the Zacks Consensus Estimate by 2%. ANGO has an estimated fiscal 2026 earnings growth rate of 27.8% compared with the S&P 500 composite’s 10.5%. The company beat on earnings in each of the trailing four quarters, the average surprise being 70.9%.

Veeva Systems, sporting a Zacks Rank #1 at present, posted fourth-quarter fiscal 2025 adjusted EPS of $1.75, which exceeded the Zacks Consensus Estimate by 10.1%. Revenues of $720.9 million surpassed the Zacks Consensus Estimate by 3.2%.

VEEV has an estimated long-term earnings growth rate of 26.6% compared with the industry’s 20.8%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.9%.

Masimo, currently sporting a Zacks Rank #1, reported a fourth-quarter 2024 adjusted EPS of $1.80, which surpassed the Zacks Consensus Estimate by 20.8%. Revenues of $600.7 million topped the Zacks Consensus Estimate by 0.8%.

MASI has an estimated earnings yield of 3.5% for fiscal 2025 compared with the industry’s 3.6%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 14.4%.

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This article originally published on Zacks Investment Research (zacks.com).

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