Disillusionment and confidence: Fresenius and FMC have to stack lower again

disappointment and confidence
Fresenius and FMC have to stack lower again

Massive problems at the dialysis subsidiary FMS are also affecting the parent company Fresenius. Due to high costs and major difficulties in filling vacancies, both companies listed on the DAX have had to lower their earnings expectations. The executive floors are tightening the reins.

The healthcare group Fresenius and its dialysis subsidiary Fresenius Medical Care (FMC) have once again adjusted their earnings targets for the current year downwards. The sales targets of the two Bad Homburg DAX companies, which were lowered at the end of July in the wake of the profit warnings, remain unchanged. FMC, the largest subsidiary of the Fresenius Group, continues to be burdened by the ongoing labor shortage in the USA, high fluctuation rates and the associated high wage costs. In addition, the effects of the improvement measures in the North American service business are being delayed. The dialysis service provider now expects these effects to become noticeable in the coming year.

Against this background, the dialysis group, which has a strong presence in the USA, is now anticipating a drop in consolidated earnings in the high teens to mid-twenties percentage range in the current year. Fresenius Medical Care AG & Co. KGaA had previously forecast a decline in consolidated earnings in the high tens of percent for 2022. FMC expects sales growth to continue in the low single-digit percentage range this year. After the long Corona dry spell this year, FMC had originally planned to return to profit growth and increase both sales and net income in the low to mid single-digit percentage range.

“Culture of performance and clear responsibilities”

“We must continue to operate in a difficult and highly volatile macroeconomic environment – with persistent inflation, which, as expected, has continued to weigh on our results. We were able to reduce the number of vacancies in our dialysis centers, but they remained at a high level. This affects both our costs as well as growth in the services business,” said FMC CFO Helen Giza. “Despite our disillusionment that the measures introduced in North America are having a delayed effect, we are confident that our intensified efforts will bring the necessary improvements.” According to FMC CEO Carla Kriwet, the development of a comprehensive turnaround plan “which will also include a culture of performance and clear accountability” has begun.

In the third quarter, FMC’s sales increased by 15 (currency-adjusted 3) percent to almost 5.1 billion euros. The operating result, on the other hand, fell by 7 percent (adjusted for currency effects: 17 percent) to 472 million euros. Reasons are mainly higher costs for personnel and in the supply chain. The US government’s financial support of €80 million to offset certain costs related to the Covid-19 pandemic provided at least partial compensation. The group result fell by 16 (currency-adjusted 24) percent to 230 million euros.

The parent company Fresenius, whose group result includes around a third of the result of the dialysis subsidiary, adjusted its earnings target for the current year not only because of FMC, but also because of the development of the smallest division Vamed. It now expects currency-adjusted consolidated earnings to fall by around ten percent. Currency-adjusted Group sales are expected to increase by a low to mid-single-digit percentage.

“Focus is on profitability”

In the past quarter, Fresenius had a turnover of around 10.4 billion euros, 12 (currency-adjusted 5) percent more than in the third quarter of the previous year. Analysts had expected slightly less on average. Adjusted operating profit (EBIT) fell by 9 percent (currency-adjusted 17 percent) to 949 million euros. Here the consensus estimate was only 634 million euros.

Adjusted profit after taxes and third parties fell from 435 million to 371 million euros. Analysts had forecast a slightly less severe drop in earnings. Earnings were primarily impacted by increased personnel costs at FMC in the USA as well as cost inflation and the revaluation of assets in the international project and service business at Fresenius Vamed.

“We at Fresenius know that we have to keep improving,” said CEO Michael Sen, who has been in office since the beginning of October. “My priorities are clear: Realign the Group, help Fresenius to regain its strength and create value for our shareholders “Our business is growing, but in a more difficult environment. Now we are focusing on increasing productivity through structural adjustments. We have started to review all business activities, looking at the entire portfolio. The focus is on Profitability.”

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