Drop in net profit margins
For fiscal 2017, Fresenius Medical Care (FMS) has projected year-over-year (or YoY) growth in operating income in the range of 7%–9% over its 2016 IFRS operating income of around 1.1 billion euros. In 1H17, the company witnessed a YoY drop of 70 basis points on a reported basis and 60 basis points on a constant currency basis in operating income margins from 13.5% to 12.8%.
For fiscal 2017, Wall Street analysts have projected Fresenius Medical Care’s net profit margins to be close to 6.2%, which is a YoY decline of ~70 basis points.
In 2017, Fresenius Medical Care’s peers DaVita (DVA), Laboratory Corporation of America Holdings (LH), and Quest Diagnostics (DGX) are expected to report net profit margins close to 6.0%, 8.2%, and 9.2%, respectively.
Foreign currency translation impact
In 2Q17, Fresenius Medical Care witnessed a YoY drop of 100 basis points in operating income margins from 14.2% to 13.2%. An ~70 basis point decline in margins is attributed to currency translation effects due to the strengthening of the euro against the US dollar, Chinese yuan, Turkish lira, Russian ruble, and Brazilian real.
In 2Q17, the company witnessed a 7% drop in constant current earnings after tax (or EAT) growth. In the absence of foreign currency transaction effects, Fresenius Medical Care would have reported a 9% rise in EAT in 2Q17.
Because Fresenius Medical Care does not completely hedge away its foreign currency risk, this may affect the company’s operating margins in future quarters. This may have an adverse impact on the company’s stock price as well as the Vanguard FTSE All-World ex-US ETF (VEU). Fresenius Medical Care comprises ~0.05% of VEU’s total portfolio holdings.
In the next article, we’ll discuss the growth trends for Fresenius Medical Care in the North American market.