Coloplast, a prominent player in the medical device sector based in Denmark, has reaffirmed its fiscal 2024 outlook despite encountering a third-quarter profit that did not meet analysts' expectations. The company reported a higher operational cost burden and a negative impact from currency fluctuations.
Nevertheless, Coloplast anticipates an organic revenue growth of 8%. When considering the acquisition of Kerecis, an innovative biotechnology firm headquartered in Iceland that was integrated in 2023, alongside the adverse currency effects, the company forecasts a reported revenue growth in the bracket of 10% to 11%.
Furthermore, Coloplast has maintained its EBIT margin guidance, expecting it to lie between 27% and 28% before special items. In the latest quarter, which concluded on June 30, the EBIT margin experienced a slight contraction, decreasing from 28% to 27% year-over-year. This decline is attributed primarily to Kerecis' integration, heightened commercial expenditures—all of which include costs associated with new product launches—and ongoing unfavorable currency exchanges. Coloplast's net profit for the third quarter of fiscal 2024 remained stable at 1.27 billion Danish kroner, representing a miss against the Visible Alpha consensus estimate that projected the profit to be 1.34 billion kroner.
In contrast, the medical equipment manufacturer saw its revenues surge to 6.89 billion kroner, an increase from 6.11 billion kroner, surpassing analyst expectations that set a consensus estimate of 6.81 billion kroner. This growth was fueled by a noteworthy 35% organic growth from Kerecis, alongside favorable exchange rate movements and a stronger-than-anticipated performance in its business segments, particularly Wound & Skin Care and Voice & Respiratory Care. Sales growth within these segments has drawn attention from analysts.
Bernstein, for instance, lauded Coloplast's robust overall performance and the impressive escalation in revenue from Wound Dressings and the Voice & Respiratory division. However, they cautioned that the EBIT margin of 27.2% might lead to slight adjustments in full-year margin expectations, potentially impacting stock performance negatively. In line with this observation, RBC Capital Markets commented, "While the revenue beat is incrementally positive, we recognize that lower-than-expected EBIT margins (approximately 0.7 percentage points less than consensus, standing at 27.2%) in Q3 elevate the risk of not achieving consensus EBIT margin projections for FY2024.
These projections remain at the upper limit of guidance. We anticipate small downgrades in FY2024 profitability estimates, although these are expected to be incremental." Despite the market's reservations, Kristian Villumsen, Coloplast’s President and Chief Executive Officer, affirmed the company’s commitment to its guidance, noting that the anticipated organic growth of 8% and the EBIT margin outcome of 27% align with the company's financial benchmarks.
He further commented, “Finally, we are making good progress with our new product launches, expanding our innovation to more and more markets.” Looking ahead, Coloplast has revised its forecast for capital expenditures for fiscal 2024 downwards, now projecting it to be approximately 1.3 billion kroner, down from the previous 1.4 billion kroner estimate.
The company intends to channel investments into establishing a new manufacturing facility in Portugal, acquiring new machinery for existing and forthcoming products, enhancing IT infrastructure, and improving sustainability measures. Additionally, costs related to the integration of Atos Medical will be factored in.
The board has set intentions to return excess liquidity to shareholders via dividends and stock buybacks, targeting a payout ratio ranging from 60% to 80% of net profits. In trading activity, Coloplast's shares experienced a 3% decline during late morning sessions, reflecting market responses to the profit report and future guidance..