Investors drown out Cochlear

Market takes dislike to $77.7m half year profit announcement

a woman

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Despite reporting a large lift in profit to $77.7 million for the six months to December 2012, investors have slammed Cochlear Limited's (ASX: COH) shares in trading so far today. At lunchtime, the shares are down 6%.

Analysts had been expecting Cochlear to report a profit of $80 million, and it may be the fact that Cochlear failed to beat market expectations that investors are shunning the stock today.

The world's biggest hearing implant maker, which has an estimated 65% of the market, recovered from a $20 million loss a year earlier, after being forced to recall its flagship series implant in September 2011. The recall followed a string of failures due to water entering the device through small cracks, and the company was forced to take a $100 million provision.

The recall came as major rival, Sonoma was preparing to re-release its own device after experiencing a recall of its own, and gave Cochlear's other rival, Advanced Bionics a chance to take some market share.

Despite recalling its CI500 implant, Cochlear was able to quickly switch to a previous model, limiting market share losses. The company has yet to announce when it will reintroduce the CI500 implant, despite taking action to fix the fault.

Earnings per share for the current half came in at 136.6 cents and the company announced a 40% franked dividend of 125 cents, an increase on last year's 120 cents.

The company also announced that it had record half year implant sales of 13,672 units, up 27%, and had maintained its EBIT margin, despite challenges such as the economic woes in Europe and the continued appreciation of the Australian dollar.

In a pleasing sign, sales in Asia Pacific rose 33% in constant currency terms, and the company stated that it has confidence in its long-term, sustainable growth prospects.

The Foolish bottom line

While the result may not have pleased the market, Cochlear appears to have plenty of drivers for growth in future years. A growing global footprint, sound balance sheet, leading market share and technology partnerships should all lead to the company improving on this result in the years ahead. Cochlear remains one of Australia's world-beating healthcare companies along with the likes of CSL Limited (ASX: CSL) and Sirtex Medical Limited (ASX: SRX).

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