High Expectations Hurt Cochlear

By Glenn Dyer | More Articles by Glenn Dyer

Greedy shareholders have given Cochlear (COH) a real whack yesterday for not making overly ambitious market estimates for earnings in the year to June.

The shares tumbled by close to 16% in early trading. They later staged a rally to cut the loss to around 7.2% and they ended at $83.56.

The company’s guidance for 2015-16 was also seen as underwhelming by some early reports, but that was also a misreading.

Unlike Ansell on Monday which revealed an earnings cut from ther high US dollar and other currency changes, Cochlear has forecast a solid rise of 10% or more for the current year.

"We anticipate that we will again make steady progress in F16 and will continue to underpin the long term growth of the company by ongoing investments in technology and market expansion activities,” directors said.

"The profit guidance for F16 is for an NPAT range of $165 million to $175 million at FX rates of USD/AUD of approximately 75c.” (The currency is currently lower than that at 73.50 and is forecast to weaken slowly in coming months.)

Investors also reacted to what appeared to be a sharp cut in dividend, but that was a case of many day traders not remembering an earlier warning from the board that the company would be pegging dividends to 70% of profit in 2014-15.

As a result, the final payout fell $1 a share, 21% lower than the 2014-15 final of $1.27.

The change in dividend policy in fact reflects a positive change in policy by the company. In the wake of the expensive recall in 2011, the company borrowed funds to keep ­dividends steady for shareholders as earnings bounced around with the fluctuating costs of the recall and new investment in products.

Up to yesterday Cochlear shares had risen 33% in the past year, compared to a 1% rise in the ASX 200 index. That gain is now back to 23%.

COH 1Y – Cochlear sold off despite 56% profit lift

The irony of the violent market sell-off was that the full year result was pretty decent.

Cochlear said its full-year net profit was boosted by strong sales of new products, especially in the June half.

As a result net profit jumped 56% to $145.8 million in the year to June for long time CEO Brian Roberts’ last full year report ahead of his retirement shortly.

But the result was lower than the average estimate among analysts of $156.1 million, according to Bloomberg. Net profit in financial 2014 totalled $109.5 million, so the actual figure was still a top notch result.

Excluding the effect of a one-off $22.5 million patent dispute provision paid in the previous year, net profit rose 33%.

Revenue in the June 30 year jumped 15% to a new high of $925.6 million, but was again short of analyst forecast average of $937.1 million.

Excluding the effect of currency fluctuations revenue rose 10%.

Sales of Cochlear implants rose 3% to 26,838 units.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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