The Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH) share price is ending the week in a disappointing fashion.
In morning trade, the ASX 200 healthcare share is down 7% to $22.25.
Why is this ASX 200 healthcare share crashing?
Investors have been selling down the medical device company's shares after it released a poor full-year update.
For the 12 months ended 31 March, Fisher & Paykel Healthcare reported operating revenue of NZ$1.58 billion. This was down 6% (or 9% in constant currency) from FY 2022 and reflects weakness in the Hospital product segment, which offset a record performance from the Homecare product segment.
While its revenue was soft, things were far worse for its earnings due to significant margin weakness. The company's gross margin was 59.4% for the year, which represents a 369 basis point decrease in constant currency.
Management advised that this was due to continued elevated freight costs and manufacturing inefficiencies as the company rebalanced demand fluctuations with manufacturing throughput during the year.
This ultimately led to the company's net profit after tax coming in at NZ$250.3 million, which is a sizeable 34% (39% in constant currency) decline year over year.
One small positive for shareholders was that the Fisher & Paykel Healthcare board approved a final dividend of 23 NZ cents per share for the second half. This brings the total dividend for FY 2023 to 40.5 NZ cents per share, which is an increase of 3% over FY 2022.
Management commentary
While its full year performance was disappointing, the ASX 200 healthcare share's managing director and CEO, Lewis Gradon, was pleased with the company's second-half performance, which showed a decent improvement over the first. He said:
We are coming out of three financial years that were impacted by the COVID-19 pandemic, and our people, suppliers and customers have worked tirelessly to meet global demand surges. The second half result was encouraging as market conditions progressed towards more of a normal state and both our Hospital and Homecare product groups delivered good growth.
Outlook
Fisher & Paykel Healthcare expects to return to top line growth in FY 2024. Based on current exchange rates, full year operating revenue is expected to be approximately NZ$1.70 billion, with similar revenue growth rates for both Hospital and Homecare product groups. This represents a 7.6% increase year over year.
However, this may not be enough to drive profit growth in FY 2024. That's because the ASX 200 healthcare share is expecting its operating expenses to grow at a quicker rate of 12% at current exchange rates. This reflects the company's investment in R&D and sales people during FY 2023.
Positively, though, Gradon is optimistic that the worst is now over for its gross margin. He concludes:
Prior to the pandemic, we had a track record of incremental improvements in gross margin. During the last three years, our responsibility was to get as much product as possible into the hands of our customers. Now, as every team in our business turns back to efficiency gains, we are confident in our ability to return to our long-term target of 65% within three to four years. For the 2024 financial year, we anticipate a gross margin improvement of approximately 200 basis points in constant currency, or an improvement of approximately 100 basis points at current exchange rates.
