FMS - Fresenius stock slumps 13% as labor costs inflation impact leads to FY22 outlook cut; 2025 targets withdrawn

Fresenius Medical Care ( NYSE: FMS ) stock fell ~13% premarket July 28 after the company said it was cutting its outlook for FY22 due to increased headwinds from U.S. labor market and global inflation, while also withdrawing its 2025 targets.

The company also said that revenue and net income for Q2 are expected to come in below its expectations.

Based on preliminary figures at constant currency (CC), Basis EPS (excl. special items) is expected to decline -7% Y/Y to €0.77; while revenue is expected to rise +1% Y/Y to €4.76B.

Basic EPS is expected to decrease -39% Y/Y to €0.50.

"At the end of the first quarter we assumed extended labor shortages but clearly did not expect such a significant and rapid deterioration. Increased staff shortages, higher staff turnover rates and growing reliance on contract labor continue to increase our cost base, despite support received from the U.S. Provider Relief Fund. At the same time, these factors are constraining our capacity and hence our ability to deliver the volume recovery in Health Care Services that we had assumed for the back half of the year," said Fresenius Deputy CEO and CFO Helen Giza.

The German dialysis care provider noted that its growth in Q2 was affected by the number of clinics with constrained ability to accept new patients for treatment.

Fresenius said that revenue in the Healthcare Services business was negatively impacted by unforeseen declines in co-insurance, increases in patient choice of higher deductibles plans, and lower than expected collections in aged accounts receivable.

Health Care Services revenue grew +1% Y/Y to €3.78B; Health Care Products revenue grew +1% Y/Y to €975M.

Operating income decreased -27% Y/Y to €341M.

CEO Transition : The company said Rice Powell will step down as CEO effective Sept. 30. The start of Carla Kriwet as CEO of Fresenius has been advanced to Oct. 1.

FME25 Measures : Fresenius said that with savings of €26M in H1 it was on track to achieve its savings target of €40M - €70M in 2022 as part of the FME25 transformation program.

Outlook :

FY 2022 : Fresenius Medical Care said it now expects revenue to grow at the low end of the previously guided low to mid-single digit percentage range. Meanwhile, for net income (before special items) the company expects a decline of around a high teens percentage range compared to the previously guided growth of a low to mid-single digit percentage range. Both at CC.

The company assumes Business growth of €70M instead of the prior estimate of €250M.

FY 2025 : The company noted that it does not expect today to be able to achieve the compounded annual average increases that would now be needed to accomplish its 2025 targets.

FMS: -12.81% to $19.61 premarket July 28

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