Chemed Corporation's Business Overview
Chemed Corporation (NYSE:CHE) is a diversified healthcare services company that operates two wholly-owned subsidiaries: VITAS Healthcare and Roto-Rooter. VITAS is the nation's largest provider of end-of-life hospice care, while Roto-Rooter is the leading provider of plumbing and drain cleaning services in the United States.
With a rich history spanning over five decades, Chemed has established itself as a reliable and innovative player in the healthcare and home services industries. The company's unwavering commitment to excellence and its ability to adapt to changing market dynamics have been the driving forces behind its sustained success.
Chemed's Business Segments: Thriving in Hospice Care and Plumbing Services
Chemed Corporation's journey began in 1970 when it was incorporated in Delaware as a subsidiary of W.R. Grace & Co. The company succeeded the business of W.R. Grace & Co.'s Special Products Group as of April 30, 1971, and remained a subsidiary until March 10, 1982, when it became an independent entity.
Over the years, Chemed has engaged in several significant acquisitions and divestitures of diverse business units, shaping its current focus on healthcare and home services. A pivotal moment in the company's history came in 2004 when Chemed acquired VITAS Healthcare Corporation, solidifying its position in the hospice care industry.
VITAS Healthcare: A Dominant Force in Hospice Care
VITAS, a wholly-owned subsidiary of Chemed, is the nation's largest provider of end-of-life hospice care, serving terminally ill patients and their families. Established in 1978, VITAS has grown to become a leading name in the hospice industry, operating in 17 states and the District of Columbia. The company's comprehensive suite of services includes medical care, emotional and spiritual support, and bereavement counseling, all tailored to the unique needs of each patient and their loved ones.
In the fiscal year 2024, VITAS reported net revenue of $1.53 billion, representing a 16.4% increase from the previous year. The segment's average daily census (ADC) reached 21,170 patients, a 14.1% year-over-year growth, while total admissions grew by 6.4% to 67,450. These impressive figures showcase VITAS' ability to consistently expand its patient base and solidify its market-leading position.
VITAS' revenue growth was driven by a 14.1% increase in days of care provided and a 2.8% increase in the weighted average Medicare reimbursement rate, partially offset by a 1.1% negative impact from acuity mix shift. The segment's adjusted EBITDA margin was 18.7% in 2024.
Over 95% of VITAS' revenue comes from the Medicare and Medicaid programs, with payments made primarily on a per diem basis. VITAS' profitability is largely dependent on its ability to manage the costs of providing hospice services to patients.
Roto-Rooter: A Dominant Force in Plumbing and Drain Cleaning
Roto-Rooter, Chemed's other wholly-owned subsidiary, is the nation's largest provider of plumbing and drain cleaning services, serving both residential and commercial customers. With a history dating back to 1935, Roto-Rooter has built a strong brand recognition and a vast network of company-owned branches, Independent Contractors, and franchisees, allowing it to serve over 90% of the U.S. population.
In the fiscal year 2024, Roto-Rooter generated net revenue of $900.31 million, a slight decrease of 5.2% compared to the previous year. The segment's residential revenue declined by 2%, while commercial revenue increased by 0.4%. Despite these challenges, Roto-Rooter maintained its strong market position, leveraging its brand recognition, 24/7 call centers, and aggressive online presence to serve customers across the country.
Roto-Rooter's main lines of business are short-term core services (plumbing, sewer/drain cleaning, excavation) and water restoration services. The segment's adjusted EBITDA margin was 26.3% in 2024.
Navigating Unique Challenges and Delivering Consistent Performance
Chemed's success can be attributed to its ability to navigate the unique challenges faced by its two distinct business segments. In the hospice care industry, VITAS has consistently demonstrated its resilience in hiring and retaining licensed healthcare professionals, a critical factor in providing high-quality patient care. The segment's strong growth in admissions and average daily census reflects its commitment to excellence and its ability to adapt to changing market dynamics.
On the Roto-Rooter side, the segment has faced a competitive and fragmented industry, with intense competition from local and regional entities, as well as private equity-backed players. However, Roto-Rooter has managed to maintain its leadership position by leveraging its strong brand recognition, 24/7 call centers, and aggressive online presence to serve customers across the country.
Throughout its history, Chemed has faced various challenges. In 2017, VITAS entered into a settlement agreement to resolve civil litigation under the False Claims Act. VITAS denied any violation of law but agreed to the settlement without admission of wrongdoing. More recently, in 2022, VITAS was one of a group of hospice providers selected by the Office of the Inspector General for an audit of elevated level-of-care hospice services. This audit resulted in recommendations for VITAS to repay approximately $140 million, though many of the disputed claims were time-barred from being challenged.
The company has also had to navigate industry-wide labor shortages, particularly among healthcare workers at VITAS, as well as the evolving regulatory environment surrounding hospice care reimbursement.
Chemed's Financial Strength and Shareholder Returns
Chemed's financial performance has been consistently strong, with the company reporting solid revenue and earnings growth over the years. In the fiscal year 2024, the company reported total revenue of $2.43 billion, a 7.4% increase from the previous year. Net income for the same period was $302 million, or $19.89 per diluted share. The company's annual operating cash flow was $417.5 million, and annual free cash flow was $368 million.
For the most recent quarter (Q4 2024), Chemed reported revenue of $640 million, up 9.2% year-over-year. Q4 2024 net income was $90.3 million. The revenue increase was driven by a 14.6% increase in days of care and a 3.5% increase in the geographically weighted average Medicare reimbursement rate at VITAS. However, the acuity mix shift negatively impacted revenue growth by 119 basis points.
The company's strong cash flow generation has allowed it to maintain a healthy balance sheet and return capital to shareholders. Chemed has a long history of paying quarterly dividends, with the latest dividend of $0.50 per share paid in March 2025. The company has also been actively repurchasing its shares, with $361.4 million in share buybacks during the fiscal year 2024.
Chemed's Liquidity Position
Chemed's liquidity position remains strong, supported by its consistent cash flow generation and prudent financial management. As of December 31, 2024, the company had no debt outstanding and a debt/equity ratio of 0.126. Chemed had $178.35 million in cash and cash equivalents and $404.5 million in unused lines of credit available under its $450 million revolving credit facility.
The company's current ratio was 1.38 and quick ratio was 1.35 as of December 31, 2024, indicating a strong ability to meet short-term obligations. This robust balance sheet and access to credit facilities provide ample financial flexibility to pursue growth opportunities and navigate potential economic challenges.
Chemed's Commitment to Growth and Innovation
Looking ahead, Chemed remains committed to driving growth and innovation across its business segments. VITAS is set to continue its expansion, with the recent acquisitions of hospice operations in Pasco County and Marion County, Florida, providing additional growth opportunities. The segment is also implementing strategies to manage potential Medicare cap limitations, ensuring sustainable long-term growth.
On the Roto-Rooter side, the company is focused on strengthening its commercial business, leveraging its local sales initiatives and camera-based sewer drain cleaning services to capture a larger share of the commercial market. Additionally, Roto-Rooter is working to stop the deterioration in its residential business, aiming to return to growth in this segment.
Chemed's dedication to innovation is also evident in its ongoing investments in technology and operational improvements across both VITAS and Roto-Rooter. These initiatives are designed to enhance customer experience, improve efficiency, and maintain the company's competitive edge.
Industry Trends and Future Outlook
The hospice and home healthcare industry has seen steady growth, with a compound annual growth rate of around 5-7% over the past decade, driven by an aging population and increasing demand for end-of-life and home-based care. However, the industry faces challenges around labor shortages and increasing labor costs, as well as pressure on reimbursement rates from government payers.
For the fiscal year 2025, Chemed has provided guidance for both its VITAS and Roto-Rooter segments. VITAS' revenue prior to Medicare cap is estimated to increase 10.5% to 11.3% compared to 2024, with ADC expected to increase 8.5% to 9%. The full year 2025 adjusted EBITDA margin prior to Medicare cap is estimated to be 18.4% to 18.9%, compared to 19.1% in 2024. A Medicare cap billing limitation of $9.5 million is currently estimated for 2025.
For Roto-Rooter, revenue growth is forecasted to be 2.4% to 3% in 2025, with an EBITDA margin expected to be in the range of 25.7% to 26.3%, compared to 26.3% in 2024.
Overall, Chemed expects full year 2025 earnings per diluted share, excluding certain items, to be in the range of $24.95 to $25.45, compared to $23.13 in 2024. The 2025 earnings trajectory is weighted towards the second half of the year.
Conclusion
Chemed Corporation's impressive track record, diversified business model, and commitment to growth and innovation make it a compelling investment opportunity in the healthcare and home services sectors. With its leading positions in hospice care and plumbing services, the company is well-positioned to capitalize on the growing demand for its essential services.
The company's strong financial performance, solid liquidity position, and forward-looking guidance demonstrate its ability to navigate challenges and deliver consistent results. While Chemed has faced some regulatory scrutiny in the past, its proactive approach to addressing these issues and its focus on operational excellence bode well for its future prospects.
Investors would be wise to closely follow Chemed's continued evolution and its ability to navigate the unique challenges faced by its two distinct business segments. As the company continues to expand its services and leverage technological advancements, it is poised to maintain its leadership position in both the hospice care and plumbing services industries.