Here’s why Cochlear Limited delivered booming profits

Market leading hearing aid and “bionic ear” producer Cochlear Limited’s (ASX:COH) half year earnings are up 94%.

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Cochlear Limited (ASX: COH) made good on market expectations to have a booming half year by reporting a 94% increase in underlying net profit. Driven by a number of new hearing aid and Cochlear implant products on the market, sales were up 18%.

Following a difficult first half in financial year 2014 when regulatory delays and the ongoing effects of a previous manufacturing issue held revenue down, this reporting season had a complete half year of rising sales and growing earnings.

This time last year, Cochlear stock had slipped just under $55 a share, weighed down by disappointing earnings. Yet today it is trading at almost $89, for about a 61% gain in 12 months.

This drives home the point of investors knowing the companies behind their stocks. Mr. Market gets impatient when earnings are slow or don’t arrive on time, so stocks like Cochlear can get sold down heavily. Shareholders who kept up with the company and news could have picked up on the improving business conditions and started building positions at bargain prices. Cochlear is the market leader in its industry and a quality company for long-term portfolios.

Here are the half-year results highlights:

–  Sales $483 million, up 18%

–  Earnings before interest and tax (EBIT) $100.5 million, gaining 103%

–  Net profit after tax (NPAT) underlying NPAT up 94% to $71.4 million, reported NPAT up 240% after significant items including a charge for patent dispute provision

–  Earnings per share 125.3 cents per share versus 37 cents per share in the first half a year ago

–  Dividends per share 90 cents per share interim dividend declared.  This is down from the 127 cps interim dividend a year ago, but in line with an announced company dividend payout target of 70% of net earnings per share (125.3 cents).

Update and outlook

Cochlear projects ongoing progress similar to the first half will continue in the second half. Cochlear has received regulatory approval for products in five separate categories, which is similar to the introduction of a number of new product releases in 2014.

The company plans market releases for all of them in the second half, so investors can look forward to robust sales and earnings. The stock currently trades at about 39 times financial year 2015’s full year forecast earnings and yields 2.5% partially franked.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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