Chemed’s third quarter was marked by continued operational challenges in both the VITAS and Roto-Rooter businesses, resulting in a negative market reaction. Management attributed the margin compression to higher costs associated with increased hospital-based admissions at VITAS and a shift toward paid leads in Roto-Rooter, which elevated expenses and weighed on profitability. CEO Kevin McNamara pointed to stabilization in VITAS’s Medicare Cap exposure and highlighted a “high watermark” in hospital admission ratios, while also noting that Roto-Rooter’s residential plumbing campaign yielded encouraging results. CFO Michael Witzeman described the quarter’s gross margin as “exactly in line with our guidance,” but acknowledged that segment margins remain below long-term targets.
Is now the time to buy CHE? Find out in our full research report (it’s free for active Edge members).
Chemed (CHE) Q3 CY2025 Highlights:
- Revenue: $624.9 million vs analyst estimates of $626 million (3.1% year-on-year growth, in line)
- Adjusted EPS: $5.27 vs analyst expectations of $5.37 (1.8% miss)
- Adjusted EBITDA: $109 million vs analyst estimates of $113.9 million (17.4% margin, 4.3% miss)
- Adjusted EPS guidance for the full year is $22.15 at the midpoint
- Operating Margin: 12%, down from 15.2% in the same quarter last year
- : 1.69 million, up 63,179 year on year
- Sales Volumes were up 2.5% year on year
- Market Capitalization: $6.22 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Chemed’s Q3 Earnings Call
- Benjamin Hendrix (RBC Capital Markets) asked how management expects to bridge Q3 results to full-year guidance, especially with both segments tracking below Street estimates. CFO Michael Witzeman cited Q4 seasonality and anticipated margin improvements as the primary drivers.
- Brian Tanquilut (Jefferies) questioned the sustainability of margin improvements, particularly in Roto-Rooter, and how higher marketing costs affect long-term business models. Witzeman explained that operational initiatives and lead generation should offset margin pressure over time.
- Joanna Gajuk (Bank of America) inquired about Roto-Rooter’s margin outlook, given the shift to paid leads and recent margin trends. Witzeman stated that while near-term pressures remain, management expects margins to trend back toward 25–26% with improved operational controls.
- Joanna Gajuk (Bank of America) also asked about Medicare Cap risk in Florida and how patient mix adjustments are reducing that risk. VITAS CEO Joel Wherley said ongoing monitoring of hospital admissions and length of stay is central to avoiding future liabilities.
- Joanna Gajuk (Bank of America) followed up on the drivers behind sequential improvements in VITAS’s gross margin. Witzeman attributed this to targeted efficiencies and cost management at the program level.
Catalysts in Upcoming Quarters
Looking ahead, our analysts will be monitoring (1) whether VITAS can sustain its hospital admission ratio and avoid Medicare Cap limitations in Florida, (2) margin recovery progress at Roto-Rooter amid higher marketing spend, and (3) the ramp-up of new program launches, such as the Pinellas County location. Developments in lead generation effectiveness and operational improvements will also be key indicators of business momentum.
Chemed currently trades at $440.68, in line with $439.05 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).
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