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By Ludwig Burger and Riham Alkousaa
(Reuters) -Shares in the world's largest kidney dialysis provider Fresenius Medical Care (FMC) plunged more than 12% to a 12-year low on Thursday after it cut its earnings outlook as costs surge and a U.S. staff shortage leaves it scrambling for nurses.
In an unscheduled statement late on Wednesday, FMC flagged a decline in net income approaching 20% this year and withdrew its 2025 targets. It also said it expected sales growth at the lower end of the previous forecast range.
Most of its U.S. patients are covered by state-run insurer Medicare, with lump-sum reimbursements per patient that only get adjusted to cost inflation with a two-year delay, the chief executive of FMC parent Fresenius, Stephan Sturm, said on an analyst call.
FMC finance chief Helen Giza said the group, which now pays a premium to temporary staffing agencies, hopes to find enough permanent renal nurses again during the first half of next year.
"We're hearing anecdotally that people are being paid $200 an hour just to kind of get into these agencies," Giza told analysts in a call. "This perfect storm that hit us in Q2, we really have to work our way out of."
The higher costs came after U.S. patient numbers declined during the pandemic because many kidney disease sufferers succumbed to COVID-19.
Parent Fresenius, a diversified healthcare group, said it expected group net income to ease in a "low-to-mid single-digit percentage range" due to the decline at FMC, prompting its shares to fall 8.4% to a two-year low.
It also expects group sales to grow by a similar degree in 2022, down from its previous forecast of a mid-single-digit percentage range.
Fresenius, which also runs hospitals, makes generic drugs and helps plan hospital construction projects, reported a 5% drop in net income to 450 million euros ($458.96 million) while group revenue rose by 8% to 10.2 billion euros.
FMC said increased staff training costs, higher turnover rates and growing reliance on contract labour pushed up costs further, in addition to non-wage cost and supply chain disruptions which also took a toll on earnings.
It said it no longer expected to achieve organic revenue growth in North American health care services this year.
"Although the company expects many of the factors behind this deterioration in near-term outlook to be temporary, we do not think this will come as much comfort to investors," analysts at brokerage Berenberg said in a note.
FMC's net income fell by 33% in the second quarter year-on-year to 147 million euros, despite a 10% rise in revenue in the quarter, preliminary results showed.
The company said new Chief Executive Carla Kriwet would take over from Rice Powell, who is retiring on Oct. 1, earlier than previously planned.
In February, parent Fresenius increased its cost savings target to at least 150 million euros per year after tax, up from a previous goal of more than 100 million euros.
Fresenius CEO Sturm said this year that FMC could be sold, but only if a very attractive price was offered. He said on Thursday that view had not changed but any bid for now appeared less likely.
He also confirmed the company was looking for external investors to help finance a takeover or merger involving hospitals unit Helios, though Fresenius intends to keep the majority of shares.
($1 = 0.9805 euros)
(Reporting by Ludwig Burger and Riham Alkousaa in Berlin; Additional reporting by Milla Nissi and Marie Mannes; Editing by David Gregorio, Jan Harvey and Mark Potter)