Fresenius SE Earnings: Easing External Pressures Help Maintain 2023 Outlook
Narrow-moat Fresenius SE FRE turned in first-quarter results about as expected and maintained 2023 guidance. Our EUR 52 fair value estimate has not changed materially, and shares remain significantly undervalued, trading at just 9 times forward earnings even after the 9% increase in shares following this report.
In the quarter, external pressures eased for some of Fresenius SE’s businesses. For example, in the U.S. dialysis market, COVID-19 mortality challenges dissipated somewhat on the retreating pandemic, and labor challenges eased. Overall, first-quarter revenue grew 5%, while adjusted operating profits declined 10% in constant currency. Management also maintained guidance for 2023, calling for low- to mid-single-digit revenue growth and up to a high-single-digit decline to flat profits, which remain in line with our expectations.
At Fresenius Medical Care in the quarter, revenue grew 2% while adjusted operating profit declined 13% in constant currency, and management maintained its guidance for the full year. In the longer run, a full turnaround in shares will likely require margin improvement in the dialysis business, and the team is aiming to boost adjusted operating margins to between 10% and 14% by 2025, up from about 8% in the first quarter. That increase appears possible to us, especially considering the significant room for improvement in its medtech margins.
Beyond dialysis, the Kabi injectable therapy and Helios hospital businesses roughly met expectations in the quarter. Kabi’s revenue grew 8% in constant currency, with its growth vectors (MedTech, Nutrition, and Biopharma) increasing 12% while its other businesses (IV drugs and fluids) increased 4%. However, ongoing investments in the growth vectors and inflationary cost pressures caused Kabi’s adjusted operating profits to decline 4% year over year. Helios was sturdy with 5% revenue growth (3% in Germany, 9% in Spain, 18% in fertility) and adjusted operating profit growth of 2% in constant currency.
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