Chemed (CHE) Q3 2026 earnings review
Chemed hospice profits jump, but higher costs squeeze plumbing
Chemed's VITAS hospice division is lifting company earnings while rising overhead costs hold back its Roto-Rooter plumbing business. Total revenue grew 11% from a year ago and profit per share excluding one-offs rose 28%, helped by a smaller share count and lower Medicare billing penalties. Management now expects full-year profit per share to finish "at or slightly above the high-end" of its prior plan, which by our math points to at least 13% growth in the fourth quarter.
| Revenue | $690.9M +10.6% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $6.75 +28.1% from a year ago |
| VITAS daily patient count | 24,428 +9.4% from a year ago |
| Full-year profit per share outlook | Raised at or above $25.75 top end (+19.5%) |
⚖️ Verdict: 🟢 Bullish
The story got better because hospice patient counts grew 9% and expanded VITAS profit margins, while plumbing sales rebounded 8% after a slow first half. Chemed also bought back major California plumbing franchises to expand its company-owned branch network. One caution: Roto-Rooter overhead expenses jumped 17%, so plumbing profit fell even as sales beat the pace implied by the full-year plan.
The question now is whether Roto-Rooter can turn its higher sales into profit growth or if paid internet advertising has permanently raised the cost of winning a plumbing job. If the cost jump came from setting up acquired California territories, plumbing margins will recover; if it came from paid search ads, profit margins will stay near 21%. Management's breakdown of marketing costs on the conference call and fourth-quarter plumbing margins will tell.
🐂 Bull Case
Hospice Patient Growth Lifted Profit Margins
VITAS, Chemed's hospice care division, is growing faster and turning more of its revenue into profit. Average daily census (ADC), the number of patients cared for each day, rose 9.4% from a year ago to 24,428. Patient admissions grew 7.2% to 18,995, and the business added 741 daily patients since last quarter.
- Revenue excluding the Medicare billing cap: $458.2 million, up 10.7% from a year ago by our math
- Cost of services: 74.6% of revenue excluding the billing cap, down 2.2 percentage points by our math
- Selling, general and administrative overhead: $23.1 million, down 1.1 percentage points of revenue
- Medicare billing cap penalty accrued: $0.8 million, down from $6.1 million a year ago
Because VITAS spread its Care costs and administrative overhead across a larger patient base, its EBITDA margin excluding the Medicare billing cap rose 3.2 percentage points to 20.2%. The division also recorded no billing cap penalty in Florida and expects none for the full year.
What to watch: the revenue and patient contribution from the four new Florida county programs on the conference call. A rising patient count in those counties would show that new markets, not just existing hospitals, are driving census growth.
Plumbing Sales Rebounded and Topped the Plan
Roto-Rooter, the company's plumbing and drain cleaning business, posted 7.5% revenue growth to $233.5 million. That beat the 5.0% to 6.0% second-half pace that management's full-year outlook pointed to by our math. Both commercial and residential branches accelerated after a slow first half.
- Commercial branch revenue: $59.9 million, up 9.0% from a year ago
- Residential branch revenue: $158.8 million, up 5.2% from a year ago
- Water restoration revenue: up 30.7% in commercial branches and 6.2% in residential
- Independent contractor revenue: $16.9 million, flat after six quarters of decline
Water restoration, which cleans up properties after leaks and floods, swung back to growth after billing changes disrupted collections earlier this year. Commercial plumbing also grew 10.6%, showing that branch commercial managers continue to bring in business accounts.
What to watch: how much of the 7.5% revenue increase came from acquired franchises versus existing branches when Chemed files its quarterly report. Strong underlying growth would confirm that residential demand has stabilized.
California Franchise Buyouts Expand the Branch Network
Chemed is buying back Roto-Rooter territories from franchisees to run them directly. During the third quarter, the plumbing division "re-acquired multiple franchise territories in California for approximately $62.5 million", following $33.5 million spent on four Texas and California franchises in the first half.
The newly purchased California territories cover more than 12 million people. Chemed said slightly over half of the acquired revenue will "become part of our owned and operated branch locations", including two new branches in Sacramento and San Diego, while the rest goes to independent contractors.
What to watch: the revenue and profit contribution from the new California branches over the next two quarters. Converting franchise royalties into direct branch sales increases revenue, but only lifts profit margins if Chemed keeps local marketing costs in check.
🐻 Bear Case
Plumbing Overhead Costs Cut Into Segment Profit
Higher sales at Roto-Rooter did not translate into higher profit. Even though segment revenue rose 7.5% to $233.5 million, Roto-Rooter's EBITDA excluding one-offs fell 2.5% from a year ago to $48.2 million, and its segment net income excluding discrete items slipped 1.8% to $33.3 million.
Overhead costs caused the drop. Selling, general and administrative expenses — which include paid internet search advertising and branch administration — jumped 17.1% from a year ago to $71.0 million. By our math, that cost line rose by 2.5 percentage points of segment revenue to 30.4%, while gross margin slipped 0.4 percentage points to 50.3%. As a result, Roto-Rooter's EBITDA margin fell 2.1 percentage points to 20.6%.
What to watch: whether fourth-quarter Roto-Rooter EBITDA margin rebounds toward the 21.5% to 22.5% full-year plan. Another quarter near 20.6% would show that paid search advertising is eating up the profit from higher plumbing revenue.
Hospice Revenue per Day Trails the Full-Year Plan
VITAS earns a daily Medicare rate that depends on the level of care a patient needs. In the third quarter, average revenue per patient day was $209.11, up 2.0% from a year ago, as a 2.2% Medicare rate increase was trimmed by a 0.25 percentage point shift away from high-acuity care.
Daily revenue slipped from $209.98 in the second quarter because high-acuity care remained just 2.2% of total days. Average length of stay also fell to 103.5 days from 109.7 a year ago. By our math, VITAS still needs 13.5% revenue growth excluding the billing cap in the fourth quarter to reach the middle of its full-year plan.
What to watch: fourth-quarter revenue per patient day after the October Medicare rate update takes effect. A reading below 2.5% growth from a year ago would leave VITAS relying entirely on patient volume to meet its full-year revenue target.
Buybacks and Deals Drained Cash and Added Debt
Share buybacks have been a major driver of Chemed's per-share profit growth, cutting the diluted share count by 8.8% from a year ago to 13.14 million. That reduction turned a 16.9% increase in net income excluding one-offs into 28.1% per-share profit growth this quarter.
Funding those buybacks alongside $96.1 million of franchise acquisitions has changed the balance sheet. Long-term debt rose to $236.0 million from $140.0 million last quarter and zero a year ago, pushing quarterly interest expense to $2.1 million. Chemed slowed its buybacks to 125,000 shares for $66.0 million, leaving $73.7 million on its repurchase plan and $166.7 million of credit capacity.
What to watch: fourth-quarter share repurchases and debt levels. Because buybacks are already slowing and borrowing costs are rising, per-share profit growth will have to come closer to actual net income growth next year.
Risks this quarter didn't answer
Four standing concerns depend on operational details that Chemed only provides on its conference call or in its quarterly filing.
- Plumbing job counts versus pricing: the release gives revenue growth by service line, but the quarterly filing's management discussion is needed to see if job volumes stopped falling.
- Paid versus free internet search leads: management discusses customer acquisition costs on the call, which will show why Roto-Rooter overhead jumped 17.1%.
- Florida hospital admission mix: the share of admissions coming from hospitals, which keeps VITAS below the Medicare billing cap, is disclosed on the call.
- Hospice regulatory rules: any update on the federal hospice provider moratorium and quality reporting rules awaits management commentary on the call.
💲 Other KPIs
Money owed by patients and customers grew 18.2% from a year ago, outpacing the 10.6% rise in company revenue. At VITAS, days of revenue waiting to be collected — including unapplied Medicare payments — rose to 37.4 days from 26.9 days last quarter and 34.0 days a year ago. That working-capital buildup pulled nine-month operating cash flow down 9.9% to $229.6 million.
Per-share profit excluding stock options, legal settlements and acquisition costs rose 28.1% from $5.27 a year ago, after rising 41.9% in the second quarter. Reported GAAP profit per share grew 22.2% to $5.45, held back by $7.0 million in pre-tax legal settlements at VITAS and corporate.
🔮 Guidance
Raised. Chemed estimates full-year profit per share excluding one-offs will finish "at or slightly above the high-end" of its prior $25.00 to $25.75 range, which equals at least 19.5% growth for the year. By our math, $25.75 leaves at least $7.28 for the fourth quarter, up 13.4% from $6.42 a year ago. It is the third upward move this year, following midpoint increases of $0.63 in Q1, $1.00 in Q2, and at least $0.38 now.
Raised (penalty lowered). VITAS now anticipates $6.1 million of full-year Medicare billing cap penalties across five provider numbers, improved from $7.0 million across four provider numbers last quarter and $9.5 million at the start of the year. Because a lower billing penalty adds directly to net revenue, this $0.9 million reduction supports full-year hospice earnings.
❓ Key Questions
How much did acquired franchises add to plumbing sales?
Roto-Rooter revenue grew 7.5% after buying franchises in Texas and California this year. Investors need the revenue growth from branches owned a year ago, and the change in plumbing job counts, to see if customer volume is still falling.
Why did Roto-Rooter overhead expenses jump 17.1%?
Roto-Rooter selling, general and administrative costs rose $10.4 million from a year ago to $71.0 million, pushing segment EBITDA down despite 7.5% revenue growth. Management has not yet split that increase between paid search advertising and new branch setup costs.
Why did hospice billing collection days jump in Q3?
VITAS days of revenue outstanding including unapplied Medicare payments rose to 37.4 days from 26.9 days in the second quarter, and company receivables grew 18.2%. Was this a temporary Medicare payment delay at quarter-end?
What is the debt limit for buybacks and franchise deals?
Chemed now carries $236.0 million of long-term debt, $48.4 million in cash, and $73.7 million of remaining buyback authorization. Will the company slow franchise buyouts and share repurchases to pay down its credit line?