The Cochlear Limited (ASX: COH) share price is down after investors heard about the coronavirus earnings downgrade.
What is the downgraded guidance?
The hearing device business had previously been guiding that FY20 underlying net profit would be in the range of $290 million to $300 million, which would have been an increase of 9% to 13%.
However, the impact of the novel coronavirus in Greater China has caused Cochlear to reduce its guidance to $270 million to $290 million, which would be an increase of 2% to 9%. This guidance assumes only Greater China sales are impacted.
What has happened to Cochlear in China?
Hospitals across Greater China, which includes Hong Kong and Taiwan, are currently deferring surgeries, including cochlear implants, to limit the risk of infection from the coronavirus.
During the SARS epidemic, Cochlear also experienced a fall in sales in China over a three-month period but then saw a rise in activity as the delayed surgeries were carried out. Cochlear thinks the delayed surgeries this year will progress once normal operations resume.
Cochlear CEO and President Dig Howitt said: "It has become clear that the coronavirus will impact a number of cochlear implant surgeries in Greater China, a top 5 market for Cochlear. Limiting the risk of exposure to the virus is an appropriate precaution. While we cannot predict how long surgeries will be delayed, the low end of guidance factors in a significant decline in sales for Greater China for the second half."
Cochlear's supply chain
Cochlear's guidance also assumes there will not be any material disruption to its supply chain, including importing components from China.
The company is expecting Chinese suppliers to return to normal production of components soon, which are primarily for sound processors and accessories. Cochlear has at least three months of inventory of most components and "at this stage do not expect any disruption to our ability to supply products to our customers".
Final Cochlear Comments
Cochlear said it remains committed to increasing its presence in China. Mr Howitt said: "Cochlear continues to invest in expanding its market presence and developing a manufacturing footprint in China as we believe in the long-term potential of the market. The Chinese cochlear implant market is important now and into the future and we remain committed to maintaining a leading position."
The Cochlear share price was down 3% just after the market opened.
