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CHEMED CORP (CHE)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue grew 3.8% to $618.8M, but adjusted diluted EPS fell 21.9% to $4.27 on a $16.4M Medicare Cap accrual at VITAS; both revenue and EPS missed Wall Street consensus (revenue $623.9M*, EPS $4.98*) .
  • VITAS ADC rose 6.1% to 22,318 and hospital-directed admissions increased 9.1%, but mix actions to mitigate Florida Cap and a catch‑up Cap accrual pressured margins (VITAS adj. EBITDA margin ex‑Cap 16.2%, −163 bps YoY) .
  • Roto‑Rooter revenue was up 0.6% to $222.6M; adjusted EBITDA margin compressed 517 bps to 21.8% on weak April–May demand, higher casualty/workers’ comp accruals (~220 bps), and a shift toward paid search leads .
  • Guidance was reduced: 2025 adj. EPS from $24.95–$25.45 to $22.00–$22.30; higher 2025 VITAS Cap ($28.2M) and lower Roto‑Rooter margin/outlook are the primary drivers; management reiterated expectation for no significant Cap in Florida for the 2026 Cap year .
  • Additional catalysts: VITAS CEO transition (Westfall departing; Wherley to succeed), and post‑quarter, a 20% dividend increase to $0.60 and a new $300M repurchase authorization .

What Went Well and What Went Wrong

What Went Well

  • VITAS volume strength: ADC 22,318 (+6.1% YoY), admissions 17,545 (+1.2% YoY; +4.9% YoY ex one‑time Covenant admissions), and average revenue per patient/day $207.03 (+350 bps YoY) .
  • Hospital‑based admissions rose 9.1%, supporting the strategy to increase short‑stay mix and mitigate Cap exposure; “job number one” is emphasizing hospital admissions and shorter stays (prepared remarks/Q&A) .
  • Balance sheet/capital returns: $249.9M cash, no debt; repurchased 75,000 shares at $572.61; $182.6M authorization remaining as of 6/30/25; post‑quarter, dividend raised to $0.60 and buyback expanded by $300M .

What Went Wrong

  • Material EPS miss vs consensus driven by VITAS Medicare Cap accrual ($16.4M; including $9.5M catch‑up for Q4’24/Q1’25 Florida) and Roto‑Rooter margin headwinds; Q2 adj. EPS $4.27 vs $4.98* .
  • Roto‑Rooter margin compression: gross margin 49.0% (−390 bps YoY), adjusted EBITDA margin 21.8% (−517 bps YoY); April–May residential softness, higher casualty/workers’ comp (~220 bps), and more costly paid search mix (>50% of leads) weighed on profitability .
  • Guidance cut: 2025 adj. EPS lowered to $22.00–$22.30, VITAS Cap raised to $28.2M (Florida $19M; others $9.2M), and Roto‑Rooter margin outlook reduced to 23.5%–24.5% (from 25.7%–26.3%) .

Financial Results

Consolidated performance vs prior periods and estimates

MetricQ4 2024Q1 2025Q2 2025Q2 2025 Consensus
Revenue ($USD Millions)$640.0 $646.9 $618.8 $623.9*
GAAP Diluted EPS ($)$6.02 $4.86 $3.57 N/A
Adjusted Diluted EPS ($)$6.83 $5.63 $4.27 $4.98*
Adjusted EBITDA ($USD Millions)$145.5 $121.7 $95.3 N/A

Values with * were retrieved from S&P Global.

Segment breakdown and margins

Segment MetricQ4 2024Q1 2025Q2 2025
VITAS Net Revenue ($M)$411.0 $407.4 $396.2
VITAS Adj. EBITDA ex‑Cap ($M)$93.2 $70.3 $66.8
VITAS Adj. EBITDA Margin ex‑Cap (%)22.5% 17.2% 16.2%
Roto‑Rooter Revenue ($M)$229.0 $239.5 $222.6
Roto‑Rooter Adj. EBITDA ($M)$60.3 $59.2 $48.6
Roto‑Rooter Adj. EBITDA Margin (%)26.3% 24.7% 21.8%

KPIs

VITAS KPIQ4 2024Q1 2025Q2 2025
ADC (patients)22,179 22,244 22,318
Admissions (patients)16,427 18,139 17,545
Avg revenue per patient/day ($)$206.23 $207.58 $207.03
High acuity days‑of‑care (%)2.5% 2.6% 2.5%
Avg LOS (days)105.5 118.7 137.1
Medicare Cap accrual ($M)$2.4 $2.3 $16.4
Roto‑Rooter KPIQ4 2024Q1 2025Q2 2025
Gross Margin (%)51.3% 50.9% 49.0%
SG&A ($M)$57.2 $62.6 $60.5
Independent contractor revenue ($M)N/AN/A$17.4

Guidance Changes

MetricPeriodPrevious Guidance (2/26/25)Current Guidance (7/29/25)Change
VITAS revenue growth (pre‑Cap)FY 2025+10.5% to +11.3% +7.5% to +8.5% Lowered
VITAS adj. EBITDA margin (pre‑Cap)FY 202518.4% to 18.9% 18.2% to 18.7% Lowered
VITAS Medicare Cap limit ($M)CY 2025$9.5 $28.2 (FL $19; other $9.2) Raised
Roto‑Rooter revenue growthFY 2025+2.4% to +3.0% +1.25% to +1.75% Lowered
Roto‑Rooter adj. EBITDA marginFY 202525.7% to 26.3% 23.5% to 24.5% Lowered
Adjusted diluted EPS ($)FY 2025$24.95 to $25.45 $22.00 to $22.30 Lowered
Effective tax rate (%)FY 202524.0% 25.3% Raised
Diluted share count (M)FY 202514.8 14.7 Slightly lower
Dividend per share (quarterly)Next payable$0.50 (June 2025 actual) $0.60 (Aug 29, 2025) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Medicare Cap (Florida)60 bps average rate vs Cap differential increased risk; minimal Cap accrual; ADC growth strong $16.4M Cap accrued (incl. $9.5M catch‑up); 2025 Cap guide to $28.2M; expect no significant Florida Cap in 2026 Elevated in 2025; mitigation actions underway; improvement expected in 2026
Patient mix/short‑stay focusStrategy emphasized; modest Cap accrual Hospital admissions +9.1%; deliberate reduction in long‑stay sources (ALFs) to right‑size mix More aggressive short‑stay mix shift
Florida expansion/CONNew wins in Marion (Dec 2024); first patient in Pasco (Oct 2024) New CON for Pinellas; ramp expected to aid growth/cap mitigation in 2026+ Expanding footprint; supportive tailwind
Tariffs/macro (consumer)Lower internet marketing costs aided Q4 margins April–May demand softness tied to “Liberation Day” tariff sentiment; leads −7.2% YoY Macro headwind eased by June–July rebound
Digital/AI initiativesN/A“Groundbreaking changes with AI” to improve lead generation and conversion; paid search >50% of leads Increasing tech usage; higher paid mix cost
Insurance/casualty costsN/AHigher accruals (~220 bps margin impact); $4M extra cost baked into H2 guidance Near‑term headwind; management actions underway

Management Commentary

  • “While the performance of both operating units did not meet our expectations... we remain confident in the overall fundamentals, growth potential, and strategic direction of both businesses.” — Kevin McNamara .
  • “We currently estimate that the consolidated Florida program will end the 2025 Medicare cap year with a $19 million billing limitation… Admissions in Florida were weaker than anticipated in April and May.” — Kevin McNamara .
  • “Adjusted EBITDA margin… excluding Medicare Cap, was 16.2%… The lower EBITDA margin… reflects the impact of admitting more short-stay patients… [which] reduces overall margin.” — Mike Witzeman .
  • “Paid searches… represent over 50% of all leads… increasing costs as a percentage of revenue for our internet marketing program.” — Mike Witzeman .
  • “We are very confident that on a run rate basis… we’re projecting a surplus next year… internally we say it’s 19 going to 0, not 19 going to 40.” — Kevin McNamara (Florida Cap outlook) .

Q&A Highlights

  • Medicare Cap mitigation and 2026 outlook: Management reiterated short‑stay focus, hospital admissions emphasis, and the attrition of a long‑stay “bubble” from prior community access initiatives; projected Florida cushion of $15–$20M in 2026 absent rate differential .
  • Rate differential approach: If Florida reimbursement exceeds the national cap growth, management will initially reserve the differential, avoiding over‑reliance while preserving upside if admissions materialize .
  • Roto‑Rooter margins/insurance: Casualty/workers’ comp accruals were a major Q2 margin driver; H2 guidance includes $4M additional costs ($2M per quarter) to avoid under‑estimating expenses; initiatives to improve safety and claims management are underway .
  • Competitive dynamics/digital strategy: Private equity competition persists in drain/plumbing; Roto‑Rooter is driving add‑on sales (water restoration/excavation), improving conversion (~50% of leads to jobs), and deploying AI tools to counter paid search disadvantages .
  • Capital deployment: No change in strategy—pursuing disciplined hospice acquisitions and buybacks; management expected buyback activity in Q3; later announced $300M authorization increase and a 20% dividend raise to $0.60 .

Estimates Context

  • Q2 2025 results vs consensus: Revenue $618.8M vs $623.9M* (miss), adjusted diluted EPS $4.27 vs $4.98* (miss). Q1 had beats (revenue $646.9M vs $641.8M*, EPS $5.63 vs $5.55*). Early Q3 actuals show revenue $624.9M vs $626.0M* and EPS $5.27 vs $5.37* .
    Values with * were retrieved from S&P Global.
MetricQ1 2025 EstimateQ1 2025 ActualQ2 2025 EstimateQ2 2025 ActualQ3 2025 EstimateQ3 2025 Actual
Revenue ($USD Millions)641.8*646.9 623.9*618.8 626.0*624.9*
Adjusted Diluted EPS ($)5.55*5.63 4.98*4.27 5.37*5.27*

Values with * were retrieved from S&P Global.

Implication: Street models need to incorporate 2025 guidance cuts (VITAS Cap and Roto margin), the VITAS Cap catch‑up, and lower tax/mix effects; near‑term margin recovery depends on Florida admissions trajectory and normalization of Roto‑Rooter cost mix .

Key Takeaways for Investors

  • Near‑term earnings reset: Guidance reductions reflect higher VITAS Cap and Roto‑Rooter margin pressure; adj. EPS cut to $22.00–$22.30 for 2025 .
  • 2026 Florida Cap outlook constructive: Management expects no significant Cap for the 2026 Cap year given mix actions and CON expansions (Marion/Pinellas), with upside if rate differentials narrow .
  • VITAS volume robust but margin trade‑off: ADC and hospital admissions strength underpin growth, but short‑stay mix compresses near‑term margins; expense reviews underway .
  • Roto‑Rooter execution focus: Addressing insurance accruals and paid‑lead mix while pushing add‑on services; H2 includes $4M extra casualty/workers’ comp costs—watch margin cadence .
  • Capital returns resilient: Strong cash and no debt support ongoing buybacks and higher dividend; $300M added repurchase authorization post‑quarter .
  • Stock narrative: Misses and guide‑down are the immediate overhangs; progress on Florida admissions/mix and Roto margin normalization are the key catalysts to re‑rate .
  • Monitor Q3/Q4: Florida rate finalization, Pinellas ramp timeline, casualty/workers’ comp accrual trends, and paid search cost mix shifts will drive estimate revisions and sentiment .

Sources

  • Q2 2025 8‑K and Exhibit 99 press release: consolidated and segment results, guidance revision, VITAS Cap details, balance sheet, cash flows .
  • Q2 2025 earnings call transcript: operational commentary, admissions/mix, tariffs/macro, Roto margin drivers, insurance accruals, digital/AI strategy, capital deployment .
  • June 27, 2025 press release: Florida Cap projection ($18–$25M), Pinellas CON announcement and growth opportunity .
  • Prior quarters for trend: Q1 2025 8‑K (strong VITAS growth; modest Cap accrual; Roto margin) ; Q4 2024 8‑K (rate differential commentary; hurricane impact; early Florida expansion; initial 2025 guidance) .
  • Post‑quarter capital actions: dividend increase and $300M buyback authorization .