FMS - Fresenius stock rises as Q4 revenue grows plans restructuring; sees 'headwinds' in FY23

Fresenius Medical Care ( NYSE: FMS ) stock rose ~5% premarket on Wednesday after the company announced plans of restructuring and cost saving targets amid its Q4 results.

Fresenius said it has implemented its new operating model with two global segments: Care Enablement (Health Care Products) and Care Delivery (Health Care Services).

The model provides transparency for business performance improvements and scalable General & Administrative functions to support the operating segments, as per the company

Fresenius noted that it has planned to change its legal form from its current KGaA structure (Kommanditgesellschaft auf Aktien) into a German stock corporation (Aktiengesellschaft), following a review

The planned conversion aims to simplify the company's governance structure and to set up a German two-tier board system with a co-determined Supervisory Board and a Management Board, FMS noted.

Fresenius noted that it continues to be an active shareholder of Fresenius Medical Care without being required to reduce its stake as part of the planned deconsolidation.

"This will involve even bolder steps to both further simplify and focus the way we manage our business to drive sustainable profitable growth recovery. This will be achieved through a simplified and efficient governance structure, faster execution on operational efficiencies within the two new global segments, and further streamlining of our processes and portfolio," said Fresenius Medical Care CEO Helen Giza.

Fresenius Medical Care noted that it has increased the savings target for its FME25 transformation program to €650M from €500M by 2025 and now expects to invest up to €650M in the same period.

Q4 results :

The German dialysis care provider's Q4 Basic EPS (excl. special items) declined -4% Y/Y (-14% at constant currency - CC) to €0.86. Meanwhile, revenue grew +8% (+2% at cc) to ~€5B.

Full year 2022 revenue increased +10% (+2% cc) to €19.4B.

Q4 Health Care Services revenue grew +9% (+2.5% at cc) to €3.95B. The company said that at cc, the increase was mainly driven by organic growth in EMEA, including the effects of hyperinflation in Turkey, and organic growth in Asia-Pacific and Latin America. However, it was partially offset by COVID-19 impact on organic growth in North America.

Health Care Products revenue rose +2.3% (0.2% cc) to   €1.05B. At cc, higher sales of in-center disposables were offset by lower sales of machines for chronic treatment, according to the company.

FMS noted that operating income excluding special items grew +0.7% (-7.7% cc) to €495M. At cc, the decline was mainly due to supply chain and labor cost increases in all regions, impact of U.S. Provider Relief Funding (PRF) received in the prior year's quarter to compensate for certain COVID-19-related costs, and higher legal costs.

This was partially offset by an unfavorable impact from the remeasurement of investments in the prior year and savings related to the FME25 program, the company added.

Outlook :

"While we expect more headwinds than tailwinds, and no governmental support for 2023, our transformation efforts and sharpened focus will enable us to accelerate the execution of our strategic initiatives and to return to earnings growth in 2024," added Giza.

Fresenius Medical Care anticipates revenue to increase at a low to mid-single digit percentage rate in 2023 (2022 basis: ~€19.4B).

The company noted that in in 2022, operating income was supported by €277M of PRF (at cc). However,  there is no additional governmental support expected for 2023.

Thus to provide a comparable basis for the 2023 earnings outlook, the company has adjusted the 2022 basis.

As per this, operating income is anticipated to remain flat or decline by up to a high-single digit percentage rate in 2023, FMS noted.

FMS +5.08% to $21.72 premarket Feb. 22

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