Cochlear hit after profit downgrade
The downgrade by Cochlear is the latest blow for Australia's listed healthcare sector after drug maker Pharmaxis was shunned by investors after its cystic fibrosis treatment failed to clear critical regulatory hurdles to enter the US market.
Cochlear warned its net profit for the year to end-June would be in the range of $130 million to $135 million.
The market had been expecting a range of between $146 million to $164 million.
The news wiped about $665 million from Cochlear's market capitalisation as the shares closed down $11.66 or 18.1 per cent.
The stock's close of $52.88 was Cochlear's lowest finish since November 2011.
Cochlear chief executive Chris Roberts attempted to shore up confidence in the company's position, telling analysts the company's final year dividend would be "at least" $1.25 per share. He also blamed slower market growth in its biggest market, the US, which generated more than 42 per cent of the company's revenue in 2012.
But analysts said reasons for the downgrade were not entirely explained during the briefing.
"I don't think those two points fully reconcile with the whole. There's a hole there that seems larger than those two elements would otherwise explain," Wilson HTM's Shane Storey said.
The profit downgrade comes as the company begins its launch of the new hearing-aid software, Nucleus 6, which has been approved in Korea and Canada, but is still awaiting regulatory approval in the US and Europe.
The Nucleus 6 is an upgraded processor, not an actual implant (there are two parts to an implant system: the device that is surgically implanted, and the processor, which is the software device that sits behind the ear).
Mr Storey said Cochlear was struggling with a tired product range. "I think that's probably the secret to why their market share is falling in major markets and why the business finds itself increasingly focused on emerging markets where you don't get premium pricing," he said.
Cochlear, which dominates the global market for hearing implants, says sales since January had been weaker as the company waited for approval to sell its Nucleus 6 in the US and Europe.
Frequently Asked Questions about this Article…
Cochlear revealed disappointing full-year sales and issued a profit downgrade, warning net profit for the year to end‑June would be $130–$135 million versus market expectations of $146–$164 million. The announcement wiped about $665 million off its market capitalisation and the shares closed down $11.66 (18.1%) to $52.88.
Cochlear said net profit for the year to end‑June would be in the range of $130 million to $135 million. Analysts and the market had been expecting a range of $146 million to $164 million, so the company's guidance was materially below consensus.
The shares fell $11.66, or 18.1%, closing at $52.88 — Cochlear's lowest finish since November 2011 — and the drop erased roughly $665 million from the company's market capitalisation.
Yes. CEO Chris Roberts told analysts the company's final year dividend would be “at least” $1.25 per share, an attempt to shore up confidence despite the profit downgrade.
Cochlear said slower market growth in the US contributed to the downgrade. The US accounted for more than 42% of the company's revenue in 2012, so a slowdown there has a significant impact on overall results.
Nucleus 6 is an upgraded processor (the external software device that sits behind the ear) rather than the implanted device. It has been approved in Korea and Canada but is still awaiting regulatory approval in the US and Europe. Cochlear said sales since January had been weaker as the company waited for those approvals.
Some analysts felt the company’s briefing did not fully explain the downgrade. Wilson HTM’s Shane Storey said the two points Cochlear raised — slower US growth and waiting on Nucleus 6 approvals — didn’t fully reconcile with the size of the downgrade, suggesting there may be additional issues not fully disclosed in the briefing.
The article notes analysts describing a 'tired' product range and falling market share in major markets, with Cochlear increasingly focused on emerging markets where premium pricing is harder to obtain. For investors, that highlights two key factors to watch: the timing and outcome of Nucleus 6 approvals in the US and Europe, and whether product refreshes and market strategy restore growth and pricing power.
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