EUR 850.00 For Business Accounts Only

Morningstar | Underneath Numerous Moving Parts, Fresenius Medical Care Retains Stable Performance

Fresenius Medical Care’s results continue to mostly track our expectations after stripping out negative currency effects, accounting changes under IFRS 15, the ongoing reimbursement transition for IV calcimimetic Parsabiv, the divestment of Sound, and a tax benefit. After adjusting for a number of these factors, Fresenius attained 5% revenue and 6% net income growth for the quarter. Additionally, management remains confident that the NxStage acquisition will close in the back half of this year. We plan to make a few adjustments to our model, but we don’t anticipate a dramatic change to our fair value estimate beyond the time value of money since our last update. Although we still have concerns about long-term pricing pressure in the dialysis industry, the proposed 1.7% increase in end-stage renal disease Medicare reimbursement for fiscal 2019 should ease the burden of limited pricing gains witnessed over the last few years. We think Fresenius’ narrow moat is in stable condition.

Fresenius Medical Care continues to see some treatment growth and margin pressure in its service operations combined with stable performance in dialysis products, but overall the company maintained an adjusted operating margin of 13.5%, up slightly from last year. Same-market treatment growth in U.S. dialysis treatments of 2.4% still falls short of our expectations. While North American operating margin of 15.2% was flat from a year ago, a weaker dialysis margin—due in part to commercial rate pressure--was offset by a modest improvement in care coordination profitability. Profitability in most geographies outside the U.S. was flat with the exception of Europe, where increased bad debt and higher personnel costs—primarily in Romania and Hungary—pushed down the region’s margin to 16.1% from 17.6% last year.