Profit falls never sound good


Hearing implant maker, Cochlear Limited (ASX: COH) has seen its share price fall dramatically after reporting falls in revenues and profits, including a $101m post-tax expense for the recall of its defective CI500 series implant.

Total revenues for the 2012 financial year came in at $779m, down 4% on the previous year. In constant currency terms, revenues were actually up 1%, which shows the strong Australian dollar has had a 5% impact on Cochlear’s revenues. A 6% fall in the sales of the company’s implant unit sales also contributed to the fall in revenues.

Net profit, including the product recall costs came in at $56.8m, compared to $180m in the previous year.

Cochlear declared a partly (35%) franked dividend of $1.25 for the second half, to go with the $1.20 declared in the first half. The total dividend of $2.45 was up 9% on 2011.

The recall of the company’s CI500 implants doesn’t appear to have affected top line results greatly, with Cochlear able to switch to supplying the CI24RE implant in fairly quick time. Loss of market share has been minimal, which was helped by the quality of the company’s second tier products.

Cochlear notes that it is well placed to take advantage of global clinical trends, such as growing demand for its products from the ageing population. Research and development costs have increased by 10% over the previous year, as the company maintains its growth initiatives. Cochlear has more products due for release in the 2013 financial year and beyond, which should see it in good stead.

Despite the outlook, investors don’t appear convinced, with Cochlear’s shares down 5% at mid-afternoon trading. Other health care companies are also seeing their share prices fall, with CSL Limited (ASX: CSL) and Resmed (ASX: RMD) both down 1.5%, although Ansell Limited (ASX: ANN) has risen 2.5%, on the back of news that it had bought French glove maker Comasec SAS for $101.5 million.

The Foolish bottom line

While the market didn’t like the news, Foolish investors need to keep an eye on the long-term outlook for the company. Remember how the company got to be where it is today –  superior products and investment in research & development that pays off in the long run.

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Motley Fool writer/analyst Mike King owns shares in CSL and Cochlear. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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