Chemed Corporation (CHE) Income Statement

The 8.8% year-over-year growth in 2026Q2 marks a sharp acceleration from the prior quarter's 1.6%, indicating that the business may be regaining momentum. However, the 2025Q4 decline of 0.1% and the modest 3.1% growth in 2025Q3 highlight the lumpiness of demand, particularly in Roto-Rooter's emergency services. The mix shift toward higher-margin water restoration likely contributed to the rebound, but investors should monitor whether this growth rate is sustainable given the cyclical nature of plumbing services.

The steady erosion in gross margin from the mid-30s to the low-30s indicates that Chemed is facing structural headwinds. The 2025Q1 spike to 33.5% appears to be an outlier, as subsequent quarters have hovered around 30%. This trend aligns with the broader industry challenge of healthcare labor costs outpacing reimbursement updates. The company's ability to offset these pressures through Roto-Rooter's higher-margin water restoration services will be critical to stabilizing profitability.

The decline in operating margin from 17.8% to 13.2% over six quarters suggests that Chemed is not scaling its overhead efficiently. While SG&A has stayed in the $100-$115 million range, gross profit has fallen from $234 million to $204 million, implying that cost controls are not keeping pace with revenue mix changes. The 2026Q2 operating margin of 13.2% is below the 2024Q1 level of 12.3%, indicating that the company has not yet regained its pre-compression efficiency.

The rise in COGS ratio from 63.4% to 69.6% indicates that input costs are growing faster than revenue. For VITAS, this likely stems from nursing wage inflation and the need to set aside reserves for Medicare cap exposure. For Roto-Rooter, technician commissions and fuel costs may be contributing. Management's ability to manage these costs, particularly through productivity improvements and mix shifts, will be key to restoring margins.

The 2025Q1 results represent a high-water mark for profitability, with gross margin at 33.5% and operating margin at 14.6%. Subsequent quarters have seen a clear deterioration, suggesting that the company entered a period of margin compression. The 2025Q2 EPS miss and the persistent labor shortages noted in recent context flags align with this inflection, indicating that the cost environment has become more challenging. The lasting impact is a structurally lower margin profile unless management can offset these pressures.