Chemed’s VITAS Hits Its Stride, Roto-Rooter Digs Out of the Paid-Lead Rut
Second-quarter beat and raised guidance underscore a healthcare services turnaround, though marketing costs still weigh.
CHE · Earnings Call · 2026-07-29
A Turning-Point Quarter for VITAS
Chemed’s second-quarter results mark a decisive departure from the Medicare cap-driven turbulence of 2025. Cap cushion built by $8.9 million in the Florida combined program, and no billing limitation was taken—versus $16.4 million a year earlier. As CEO Kevin McNamara put it, “VITAS's performance during the quarter exceeded even the high end of our expectations.” — Kevin J. McNamara, CEO or President · 2026-07-29 Admissions grew 9%, with hospital-based admix at 42.9%—squarely in the targeted 42–45% channel—while new start markets in Florida continue to add patients faster than modeled. CFO Mike Witzeman noted adjusted EBITDA (ex-cap) rose 20.6% to $80.6 million, and management used the momentum to raise full-year guidance for ADC growth, revenue, and segment margin.
Full-year ADC growth for 2026 is updated to a range of 5.75% to 6.25% compared to the previous guidance range of 4.5% to 5.5%.
Roto-Rooter: The Paid-Lead Shift Grinds On
Roto-Rooter’s story is more subdued but improving. Commercial revenue grew 6.8%, and the centralized water-restoration billing effort is paying off—average revenue per job declined only 3.5% sequentially versus 13% in Q1. “Adjusted EBITDA for Roto-Rooter in the second quarter totaled $48.5 million essentially flat when compared to the second quarter of 2025.” — Michael D. Witzeman, Executive, likely CFO or similar financial officer · 2026-07-29 However, the shift toward paid lead continues, with paid leads now 59% of the mix versus 54% a year ago, driving higher marketing spend. Management sees this as the "new normal" but is investing in ancillary services like excavation and water restoration to offset the cost. The company also bought a South Texas franchise territory for ~$12 million, part of a broader $33.5 million franchise consolidation push.
Capital Deployment and Fundamentals
Cash flow from operations exceeded $173 million in Q2, funding aggressive share repurchases and franchise buybacks. Repurchase of common stock surged to $190 million in Q1 2026 (up 472% YoY), reflecting a strong balance sheet and confidence. The stock has responded: CHE is up 40% over the last 90 days, yet still trades at a forward P/E roughly 30% below its 2024 peak. This performance contrasts sharply with the prior year, when a surprise Florida cap liability and a $0.70 EPS miss shook investor confidence. As McNamara reflected on that period, “a $0.70 per share miss is not to be trifled with.” — Operator · 2026-02-26 Today, the company appears to have put that behind it.
The fundamentals confirm the turn: Total revenue has grown from $390 million in 2016 to $658 million in Q1 2026, a 68% increase over the decade. While operating margins dipped in Q1, the raised guidance for VITAS—now expecting 19.0–19.5% EBITDA margins—signals operating leverage ahead. The contrast with the fear of missing guidance just six months ago is stark, and the market is rewarding the credibility the company is rebuilding.