The Cochlear Ltd (ASX: COH) share price fell 14% on Friday after the hearing device stock announced its HY25 result.
Cochlear provides life-changing devices that can help people hear. It also provides additional services for those devices.
Cochlear HY25 result
Let’s remind ourselves what the company reported in its first six months of FY25:
- Sales revenue rose 5% to $1.17 billion
- Underlying net profit improved 7% to $205.5 million
- Statutory net profit rose 7% to $205.1 million
- Interim dividend per share grew by 8% to $2.15
Divisional highlights
Cochlear reported that the number of implants increased by 5% to 25,390. Developed market units grew by 6%, building on 15% growth in the first half of FY24, while emerging market units grew 3%.
The company continues to see “strong growth” in adult referral rates in a number of key markets, in part driven by initiatives to improve access and access for adult cochlear implant candidates.
Cochlear also said it’s seeing signs of growing waiting lists for audiological evaluation and/or surgery in some key countries.
Looking at the breakdown of divisions, its cochlear implant revenue grew 12% to $724.5 million, services revenue (sound processor upgrades and other) decreased 13% to $305 million and acoustics revenue grew 21% to $140.4 million.
Lower upgrade rates were experienced in the services division for a range of reasons, including continuing “high satisfaction with the Cochlear Nucleus 7 sound processing.”
Acoustics revenue benefited from a strong uptake of the Osia implant across existing markets and expansion into new countries including France, Italy and some emerging market countries.
Outlook for the Cochlear share price
The company believes there remains a “significant, unmet and addressable clinical need” for cochlear and acoustic implants, which is expected to continue to help the company grow.
In FY25, it aims to help over 50,000 people to hear with a cochlear or acoustic implant.
However, it expects underlying net profit to be at the lower end of its guidance range of between $410 million to $430 million, including a lower contribution from services revenue and higher cloud-related investment.
It had expected modest services growth in FY25 and now expects a “single-digit” decline.
Cochlear implant trading conditions continue to be “solid across most markets” and it’s expecting cochlear implant unit growth of around 10% in FY25.
The gross profit margin is expected to be around 74.5%, below its longer-term target of 75%.
Cochlear said it expects to invest around 12% of sales revenue in research and development.
It also expects to invest around $250 million ($100 million more than previously expected) in its operating model redesign and core business systems upgrades over the past four years to improve efficiency and agility.
In other words, the outlook isn’t as good as investors were expecting, so it was sold off.
The Cochlear share price isn’t attractive to me. It’s still trading on a fairly high price/earnings ratio (p/e ratio) and its earnings growth rate is fairly slow. I think there are better opportunities out there.
