Shares in ASX 200 hearing implant maker Cochlear Ltd (ASX: COH) have plunged by more than a third after the company announced a massive downgrade in expected full year earnings.
Rapid worsening hits the bottom line
In a statement to the ASX on Wednesday morning the company said it now expected its underlying net profit to come in at $290-$300 million, down from a previous range of $435-$460 million.
The company said that trading conditions had weakened in recent months.
As the company said:
Since January trading conditions for cochlear implants in developed markets have been softer than expected, with revenue flat for the quarter in constant currency. Near term surgical volumes have been affected by a combination of hospital capacity constraints and reduced referral activity from the hearing aid channel. Consumer sentiment has declined in key markets, reaching historic lows in the US. The decline appears to be affecting discretionary healthcare decisions in the adults and seniors segment, adding to demand uncertainty in the near term.
Cochlear said surgical volumes had been “constrained” in Western Europe, “resulting in growing waiting lists for surgery in markets including the UK and Germany, while industrial action in Italy and Spain has restricted surgical throughput”.
The US had been trading in line with expectations until mid-February, Cochlear said, with volumes then declining in March.
Still a large unmet need
The company’s Chief Executive Officer Dig Howitt said:
Addressing hearing loss in adults and seniors continues to be treated as a discretionary intervention, highlighting the importance of our strategy to medicalise hearing loss so that treatment is recognised as an important health priority. We remain confident of our market leadership. We have seen strong adoption of the Nucleus Nexa System across the developed markets, with very positive customer feedback and a strong interest in exploring the system’s potential to further improve hearing outcomes. With contracting of the new system complete, market share has been improving. Looking forward, we have a broad R&D pipeline of growth enhancing technology. We are progressing towards commercialisation of next generation implants with two clinical studies for regulatory approval of a drug eluting electrode now fully recruited, and initial results are being analysed; and two studies for regulatory approval of the totally implantable cochlear implant underway.
Cochlear said that growth was solid in emerging markets, however the company expected order cancellations in the Middle East.
A reduction in reimbursements in China would also lower premium tier sales in the second half.
Cochlear said it continues to expect strong services revenue growth in the second half, with third quarter revenue up 13% on a constant currency basis on last year.
Cochlear also said it was also working on “reshaping components of our organisation to deliver a more flexible and lower cost-to-serve cost base”
Cochlear shares were 36.4% lower in early trade at $106.86.
The post Why are Cochlear shares down 36% today? appeared first on The Motley Fool Australia.
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Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Cochlear. The Motley Fool Australia has recommended Cochlear. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.