(Reuters) – Kidney dialysis specialist Fresenius (NYSE:FMS) forecast strong profit growth in 2016 after more modest progress this year while it cuts costs to counter pressures on payments for treatment in the United States and moves into new healthcare services.
FMC, which operates more than a third of the dialysis treatment centres in the United States, on Wednesday said net income would stagnate or grow by up to 5 percent in 2015 but would increase by 15-20 percent next year, based on current exchange rates.
Analysts had on average hoped for net income growth of more than 12 percent this year and their expectations for an annual dividend of about 0.90 euros were also ahead of FMC’s proposed payout of 0.78 euros per share.
But FMC’s 2016 guidance beat consensus expectations which had pointed to 14 percent profit growth on average. FMC’s shares rose and were among the top gainers on Germany’s blue-chip index in mid-morning trade.
"The 2015 guidance did have the potential to create a repeat performance of last year’s disappointments, but the fact that management has provided encouraging 2016 guidance should reassure investors that FMC is capable of delivering the kind of growth they expect of it over the long term," Berenberg analysts said in a note to clients.
By 1001 GMT, FMC shares were up 1.8 percent at 66.65 euros, while the DAX was 0.1 percent lower.
INVESTING IN SERVICES
U.S. state-run insurer Medicare has changed the way it pays for medical services, giving clinic operators a financial incentive to reduce costs and use fewer drugs. Medicare no longer pays for the individual services and drugs provided in dialysis but instead makes a lump-sum payment.
The programme is part of a trend in U.S. medical insurance towards making a fixed-rate payment to cover the cost of handling a chronically ill patient.
As a result, FMC has bought up a number of healthcare services companies, seeking to offer bundled treatments for kidney and cardiovascular disease to Medicare and private-sector insurers, saying it can give high-level care at lower costs.
FMC’s fourth-quarter net income of $335 million, down 4 percent, was broadly in line with analyst expectations.
FMC’s parent, healthcare group Fresenius SE said separately it expected its net income to rise between 9 and 12 percent at constant currencies this year, helped by additional earnings from the purchase of new hospitals and demand for healthcare services.
Fresenius’s Kabi business, which makes generic infusion drugs and tube-feeding equipment, is to cut annual costs by about 40 million euros from 2018, with related one-off charges dragging pretax profit 100 million euro lower in 2015.
Hospira, one of Kabi’s largest rivals, is being bought by Pfizer for about $15 billion, which could open up new marketing channels for Hospira, especially outside the United States.