Fisher & Paykel Healthcare (ASX: FPH) has been an outstanding New Zealand success story. The company designs and produces medical devices for use in respiratory care, acute care and for the treatment of obstructive sleep apnea. Many of its products are direct competitors to those of the well-known ResMed (ASX: RMD).
Fisher & Paykel which has a financial year-end of 31 March, recently embarked on a roadshow to present at a number of investment conferences including the Goldman Sachs Conference in London. With its interim results due out in late November, now would appear to be a good time for investors to take a look at how the company is travelling and what to expect when the firm reports.
Approximately 54% of Fisher & Paykel’s revenue comes from the Respiratory and Acute Care (RAC) division, with a further 42% from the Obstructive Sleep Apnea (OSA) division. In the second half of the year ending March 2013, Fisher & Paykel reported a 22% increase in net profit after tax thanks to a 9% increase in operating revenue and a 2.4% expansion in gross margin. These were very strong second half numbers and bode well for the upcoming interim results.
As Fisher & Paykel reports its results in New Zealand dollars (NZD), yet earns a substantial proportion of its revenues in foreign currencies — 43% and 33% of revenues were earned in North America and Europe respectively last year — the company is exposed to movements in exchange rates. At the time of reporting its full year results in May, the firm provided guidance based upon a NZD to US dollar exchange rate of 80 to 85 cents. Recently the company has narrowed the expected exchange rate to 80 cents which has effectively improved its reported earnings.
The company is also expecting to benefit from new products and applications that will drive revenue growth. Together these factors have led the company to upgrade full-year 2014 guidance to operating revenue between NZ$625 million to NZ$645 million and net profit after tax to between NZ$90 million and NZ$95 million. Should the company hit the lower range of its guidance this would mean achieving a growth rate of 12% in revenues and 17% in profit year on year.
Like a number of other globally focussed medical companies such as CSL (ASX: CSL) and Cochlear (ASX: COH), Fisher & Paykel is enjoying the benefits of a currency tailwind. With solid growth in its core, underlying business plus the ‘kicker’ of an exchange rate tailwind this is definitely a quality company worth keeping an eye on when it reports in November.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.