Fresenius reports lower-than-anticipated earnings for third quarter
Fresenius Medical Care AG and Co. reported preliminary third-quarter results on Oct. 17 that showed an estimated 6% drop in revenue, due primarily to lower-than-anticipated earnings from its U.S.-based dialysis services business. The report hurt the company’s stock value, sending its share price down 16.8% on the New York Stock Exchange.
“The underlying growth trends and business drivers remain intact,” Rice Powell, CEO of Fresenius Medical Care, said in a company press release on the results. “While we were able to improve profitability in North America, the growth acceleration in the region did not materialize as fast as anticipated. In addition, the business performance in some emerging countries was muted due to a challenging economic environment. Based on these developments, which are not expected to be fully recovered in the fourth quarter, we adjust our targets for fiscal 2018.”
The company said the new revenue growth target for the year would be 2% to 3%, down from 5% to 7%, and net income growth target would be adjusted to 11% to 12%, down from 13% to 15%.
Fresenius will publish its third-quarter and 9-month 2018 financial results on Oct. 30.
The expected drop in revenue contrasts with the company’s stronger forecast for the year at the end of July, when Powell announced earnings showed solid growth.
“On the back of the strong development of our products business and continued growth of our services business, we expect growth to further accelerate in the second half of 2018,” Powell told investors at the time.
Fresenius, along with DaVita Kidney Care, have also contributed heavily to fighting a Nov. 6 ballot initiative in California backed by a health care workers union that, if passed, would restrict profits for dialysis clinics operating in that state. In Arizona, a petition drive had been started to create a similar ballot initiative but was later abandoned; an initiative was also started in Ohio but was dismissed by the state Supreme Court over a technicality in how paperwork was filed by the union.
“To protect the access of our patients to dialysis care, we contributed to the opposition to the ballot initiatives in the U.S.,” Powell said.
In addition to anticipated weaker revenue results from the U.S. dialysis services business, Fresenius said there were higher patient care and supply costs estimated for the third quarter, particularly for home dialysis, along with an unfavorable payer mix. Revenues are also being impacted by year-to-date adjustments for hyperinflation occurring in Argentina, where the company provides dialysis care, and an increase in funds to cover an ongoing U.S. Foreign Corrupt Practices Act (FCPA) settlement. In February, Fresenius said it has set aside $245 million for a potential resolution involving the Securities and Exchange Commission and the Department of Justice based on potential FCPA violations.
“We have also increased the provision for the FCPA-related charge by EUR 75 million (not tax effected). This increase reflects an understanding with the U.S. government on the financial aspects of a potential settlement and an update of ongoing legal costs to reach closure. However, significant non-financial matters are still under discussion and must be resolved to the company’s satisfaction for a settlement to occur,” according to the press release. EUR 75 million is approximately $86 million, bringing the total set-aside to approximately $330 million.