Chemed Earnings Call: Mixed Quarter, Back-Half 2026 Hopes
Chemed ((CHE)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Chemed’s latest earnings call painted a cautiously optimistic picture, blending tangible operational progress with a disappointing quarter. Management highlighted improving fundamentals at VITAS and clear 2026 guidance with EPS growth, but also acknowledged margin pressure at Roto‑Rooter, higher write‑offs, and transition costs that will weigh on the first half of 2026.
VITAS Admissions Growth Supports Top-Line Momentum
VITAS admissions reached 17,419 in Q4 FY2025, a 6% year‑over‑year increase, with hospital‑directed referrals and other channels helping drive the gain. While this intake growth is encouraging for future census and revenue, the mix toward hospital‑based, short‑stay patients is muting near‑term margins.
Florida Medicare Cap Risk Meaningfully Reduced
Management reported a roughly $25–$28 million year‑over‑year improvement in its Florida Medicare Cap position, marking a major de‑risking for investors. At the end of January 2026 there was no Florida Cap billing limitation recorded, and Q4’s accrual for overall Medicare Cap limits was just $2.4 million, down sharply from prior periods.
VITAS Q4 Revenue Up, Margins Under Pressure
VITAS net revenue in Q4 was $418.8 million, up 1.9% versus last year, supported by a 1.3% increase in days of care and a roughly 2.2% geographically weighted Medicare rate bump. Adjusted EBITDA before Cap fell 1.7% to $91.6 million, with the margin slipping 79 basis points to 21.7% as acuity mix and other contra‑revenue items weighed on profitability.
Muted Growth and Mix Drag at VITAS
The tilt toward higher hospital‑based short‑stay admissions drove a 143 basis point negative acuity mix shift, pressuring both average daily census and margin. Management also cited about a 20 basis point drag from Medicare Cap and other contra revenue, underscoring that the quality of admissions, not just volume, is crucial for earnings.
New Florida Market Adds Structural Growth Option
Chemed secured a certificate of need to operate hospice services in Manatee County, Florida, as of December 2025, opening a sizeable new territory with roughly 3,000 Medicare hospice patients in FY2024. Management pointed to prior wins in Pinellas, Marion, and Pasco counties that have met or exceeded expectations as a template for Manatee’s growth potential over time.
Roto-Rooter Top-Line Slump Highlights Residential Weakness
Roto‑Rooter revenue declined 3.7% in Q4 FY2025 versus the prior year, with branch residential revenue down 3.1% to $155.6 million. Within that, water restoration fell 10.3% and drain cleaning slipped 3.2%, partially offset by 6.3% growth in plumbing and flat performance in excavation, reflecting softer consumer demand and operational challenges.
Margins Compress Sharply at Roto-Rooter
Roto‑Rooter’s adjusted EBITDA dropped 21.1% year‑over‑year to $47.5 million in Q4, with margin contracting 477 basis points to 21.5%. Management attributed the deterioration to elevated marketing spending and sharply higher water restoration write‑offs, signaling that the business is paying more to acquire customers while collecting less.
Water Restoration Write-Offs Surge on Insurer Scrutiny
Implicit price concessions and credit memos tied to water restoration jumped, with Q4 write‑offs up $4 million, or 57%, versus a year ago, and about $11 million higher for 2025 overall. Write‑offs rose from just under 3% historically to over 4.5% in the second half of 2025, driven by tougher AI‑enabled insurer reviews and uneven billing practices across branches.
Commercial Initiatives Showing Pockets of Strength
Despite the headline decline, Roto‑Rooter’s commercial business showed resilience, with branch commercial revenue up 1.6% in Q4. Branches where Chemed added dedicated commercial business managers delivered about 10% higher revenue than branches without them, suggesting that targeted commercial expansion is a viable growth lever.
Paid Leads Grow but Organic Visibility Lags
Paid lead generation increased roughly 9.4% in Q4 and about 10% in each of the prior three quarters, demonstrating traction in paid acquisition. However, total leads were flat because natural leads fell, as Google map visibility slid from roughly 72% historically to just 24% at the trough and has only recovered to around 35%, creating ongoing headwinds.
Balance Sheet Strength and Shareholder Returns
Chemed continued to deploy capital to shareholders, repurchasing 400,000 shares in the quarter at an average price of $436.39. Since inception of the buyback program, the company has returned over $2.9 billion via repurchases at an average cost of roughly $167 per share, underscoring management’s confidence in long‑term value.
Operational Fixes Target Mix, Billing, and SEO
Management outlined a set of remediation actions, including rebalancing the VITAS admission mix away from short‑stay hospital referrals to improve long‑run revenue and EBITDA. At Roto‑Rooter, the company is centralizing water restoration billing and collections and has engaged a new SEO provider to rebuild natural search visibility and reduce reliance on costly paid leads.
Q4 Miss Underscores Execution Risk
The fourth quarter fell short of internal expectations at both subsidiaries, resulting in an earnings miss of roughly $0.70 per share. This disappointment has prompted management to temper near‑term optimism, emphasize that 2026 will be back‑half weighted, and stress that the benefit from current initiatives depends on successful, timely execution.
Sector Headwinds from Insurers and Competitors
Chemed highlighted broader industry disruption, noting that AI‑driven insurer scrutiny is delaying or reducing payments, particularly in water restoration. At the same time, private equity‑backed players and competitors are leaning heavily into paid acquisition, inflating lead costs and intensifying competition in residential services.
Transition Costs and H1 2026 Drag
Centralizing billing and collection, investing in technology and training, and adding commercial hires will carry upfront costs and some duplication in the first half of 2026. Management expects these transition expenses to pressure margins near term, with about 55% of adjusted net income and EBITDA now projected to land in the second half of the year.
2026 Outlook Points to Gradual Recovery
For 2026, Chemed guided VITAS revenue before Medicare Cap up 5.5%–6.5%, average daily census higher by 3.5%–4%, and EBITDA margin pre‑Cap at 17.5%–18%, with Cap limitations dropping to about $9.5 million. Roto‑Rooter is expected to grow revenue 3%–3.5% with a 22.5%–23% EBITDA margin, supported by better SEO, paid leads, commercial hires, and a $4–$6 million tailwind from improved water restoration collections.
Looking ahead, management expects consolidated adjusted EPS of $23.25–$24.25 in 2026, up from $21.55 in 2025, assuming a 24.5% tax rate and 13.9 million diluted shares, and reiterates that roughly 55% of earnings will be generated in the back half. Overall, the earnings call balanced near‑term disappointment and sector headwinds with clear remedial steps and mid‑term upside, leaving investors focused on execution and the timing of the planned recovery.
