Fresenius Medical Care (FME) Q1 2018 earnings summary

Executive summary

• Q1 revenue €3.98bn, down 13% reported and 1% at constant currency; operating income €497m, down 24% reported and 15% at constant currency.

• Net income attributable to shareholders was €279m, down 10% reported and flat at constant currency; adjusted for specified prior-year and one-time items, it rose 8% at constant currency.

• Management described the quarter as solid, citing organic growth and progress in dialysis services and products, while maintaining its 2018 earnings-growth target.

Financial highlights

• Revenue from healthcare services fell 15% reported and 3% at constant currency; excluding IFRS 15 and the prior-year veterans’ and Justice Department settlement effect, it rose 4% at constant currency.

• Healthcare product revenue fell 2% reported but rose 6% at constant currency; dialysis treatments increased 3%, including 2% organic growth.

• Operating income was €497m versus €651m; adjusted for IFRS 15, the prior-year settlement effect and initial Sound valuation, operating margin was unchanged at 12.8%.

• Net interest expense declined 14% to €80m; income tax expense fell 52% to €87m, with the effective tax rate at 20.9% versus 32.5%, mainly reflecting U.S. tax reform.

• EPS was €0.91 versus €1.01; at constant currency EPS was unchanged.

Outlook and guidance

• 2018 revenue growth guidance was reduced from ~8% to 5–7% at constant currency, reflecting faster-than-expected reductions in U.S. calcimimetic dosing.

• 2018 operating income growth guidance is 12–14%; remaining EBIT growth 13–15%; net income growth at constant currency remains 13–15%.

• Guidance excludes the planned NxStage acquisition and Sound divestiture; capex is expected at €0.9–1.0bn and acquisitions at €1.0–1.2bn.

• Other targets include operating cash flow above 10% of revenue, free cash flow above 4%, net leverage below 2.5x and ROIC of at least 8.0%.

• R&D spending is projected at €140–150m; year-end headcount is expected to exceed 117,000.