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Fresenius SE Earnings: Easing External Pressures Helps Turnaround

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Securities In This Article
Fresenius SE & Co KGaA
(FRE)

Narrow-moat Fresenius SE FRE turned in decent second-quarter results and largely maintained its 2023 guidance, as external pressures are easing. Our EUR 52 fair value estimate has not changed materially, and shares remain significantly undervalued, in our opinion.

In the quarter, external pressures eased for some of Fresenius SE’s businesses. Within its large stake of Fresenius Medical Care, COVID-19 mortality challenges appear to be dissipating in the dialysis market as pandemic conditions ease, and labor challenges are dissipating in the U.S. market, too. Specifically, Fresenius Medical Care’s revenue grew 6% in constant currency in the quarter and free cash flow grew 47% in the first half of the year. Going forward, management still expects low- to mid-single-digit revenue growth in 2023, and considering recent trends, the dialysis business mildly increased its target range for operating profit growth to a flat to mid-single-digit decline (versus flat to high-single digit decline) for the full year. In the quarter, the two companies made steps toward deconsolidating the dialysis business from Fresenius SE, which is expected by the end of 2023.

Beyond dialysis, the Kabi injectable therapy and Helios hospital businesses performed well, while Vamed continued to disappoint. Kabi’s revenue grew 8% organically with its growth vectors (medtech, nutrition, and biopharma) increasing 12%, including new biosimilar launches, while its other businesses (IV drugs and fluids) increased 5% on increasing medical utilization. However, ongoing investments in the growth vectors and inflationary cost pressures caused Kabi’s adjusted operating profits to increase only 5% year over year. Helios turned in decent results with 7% revenue growth (4% in Germany, 12% in Spain, 11% in fertility) and adjusted operating profit growth of 3% in constant currency, despite inflationary pressures. Vamed remained a drag, though, and management appears to be exploring options for this business.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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