Why Chemed Stock Is Plummeting Today
Key Points
While Chemed's sales were reasonable enough, both of its business segments' profitability plummeted.
Its hospice care unit, Vitas, saw earnings decline as it faced Medicare cap billing limitations.
Earnings for Chemed's Roto-Rooter business dropped as it continues to wrestle with increasing marketing costs.
Chemed (NYSE: CHE) -- home to hospice care provider Vitas Healthcare and Roto-Rooter -- saw its shares decline 9% as of 1 p.m. ET on Wednesday, according to data provided by S&P Global Market Intelligence.
Chemed reported second-quarter earnings that fell short of analysts' expectations, causing its share price to tumble.
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While Chemed grew sales by 4% in Q2, adjusted earnings per share (EPS) declined by a staggering 22%. Meanwhile, management cut 2025 EPS guidance from $25.20 to $22.15, implying a 4% decline from last year's earnings.
Adding further uncertainty, the company announced Nick Westfall, CEO of Vitas Healthcare, was stepping down.
Chemed's challenging quarter
From a revenue perspective, Chemed's Q2 was relatively steady. However, each business segment faced profitability issues.
Vitas grew revenue by 4%, but faced Medicare cap billing limitations that caused earnings to drop by 24%. Even excluding these as theoretical one-time impacts (though it is more of a continuous cycle thanks to working in a highly regulated industry), Vitas's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was flat for the quarter.
Image source: Getty Images.
Meanwhile, Chemed's typically steady-Eddie Roto-Rooter business only eked out 1% sales growth alongside a hefty 20% decline in net income. Much of this decrease stems from increased pressure on its marketing costs.
Management referenced Alphabet-owned Google search during the earnings call, explaining:
They're saying if we can get money for making them pay for advertisers, we'll make sure they don't show up in the free areas. We deal with it. It's a bit of an adjustment for us.
Though Roto-Rooter remains the largest plumbing company in North America, this issue needs to be monitored by investors.
Ultimately, Chemed has a lot to sort out, but at just 20 times free cash flow, it could be a turnaround story.
Josh Kohn-Lindquist has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.