Cochlear Ltd (ASX: COH) shares have plunged into the red on Friday morning.
At the time of writing, the hearing solutions company's shares are down 17.5% to $202.60.
This has been driven by the release of a softer-than-expected half-year result and an update on its earnings guidance for FY 2026.
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Cochlear shares tumble on results
For the six months ended 31 December, Cochlear reported sales revenue of $1.176 billion, up just 1% on the prior corresponding period and down 2% in constant currency.
While cochlear implant units increased 6% to 27,016, revenue growth lagged unit growth due to mix, particularly a higher proportion of lower-priced emerging market units.
Gross margin declined two percentage points to 73%, reflecting a higher mix of lower-margin emerging market sales. Operating expenses rose 1% as the company continued investing in R&D and long-term growth initiatives.
This led to Cochlear's underlying net profit falling 9% to $195 million, while statutory net profit dropped 21% to $161.5 million.
Despite this, the company's board held its interim dividend steady at $2.15 per share, representing a 72% payout of underlying earnings.
Nexa rollout slower than hoped
A key factor weighing on Cochlear shares today appears to be the slower-than-expected rollout of the new Cochlear Nucleus Nexa system.
Management said the product registration and contract renewal process for the new implant took longer than anticipated, particularly where price increases were sought. While approvals in Europe, Asia Pacific and the US were secured mid-year, availability expanded progressively across the first half.
By December, around 80% of units sold comprised the new Nexa system, and management pointed to gains in market share late in the half. However, the delay meant only low single-digit revenue growth in developed markets during the period.
This timing issue appears to have disrupted the earnings trajectory investors were anticipating.
Outlook
Cochlear has reaffirmed its full-year underlying net profit guidance range of $435 million to $460 million.
However, it now expects earnings to land at the lower end of that range due to the first-half contracting delays.
There is also currency risk. Guidance assumes AUD/USD of 66 cents and AUD/EUR of 56 cents. If the Australian dollar remains at current levels, underlying net profit could be reduced by approximately $30 million.
