Cochlear dips on slumping China sales

(Reuters) — Cochlear Ltd. (ASX:COH), the world #1 hearing implants maker, yesterday posted record half-year profits on a robust U.S. sales, but a slump in China tender orders pushed its share price more than 3% lower when the market closed Down Under.

Although Cochlear has come back from a damaging recall in 2011 to book strong results over the past 2 years on soaring sales to China, fewer sales under Beijing’s national tender scheme for implants has created new uncertainty for the company.

The number of implants for young children it sold under the tender scheme fell to 1,100 in the first half from 1,700 a year earlier and Cochlear cut its full-year outlook for those units to be lower than 2016 results instead of in line.

“That’s a significant decrease … that’s an important number for us, because remember, with the China tender, you’re either in or you’re out, you either ship or you don’t,” CEO Chris Smith told analysts during a conference call.

Disappointment in China was, however, offset by a strong showing in North America due to several new products, including a thinner implant which allows less intrusive surgery. Net profit for the 6 months ended Dec. 31 surged 19% to a record A$111.4 million ($85.1 million).

“The new processor and implant introduced in the second quarter really seems to have caused a bounce in the U.S.,” said Morningstar health stock analyst Chris Kallos.

Its fastest sales growth, of 10%, was in Cochlear’s biggest market in the Americas, which comprises almost half the company’s revenue. Asian sales, which account for almost a 5th, climbed 4%.

Overall, the maker of about two-thirds of all hearing implants sold globally is tracking toward the upper end of its own guidance for a full-year profit of between A$210 million and A$225 million ($161 million to $173 million).

On an earnings-per-share basis, the 1st-half result of A$1.94 ($1.49) came in slightly below analyst expectations of A$1.96, ($1.50),  but it raised its interim dividend to A$1.30 per share from A$1.10 (to 99.7¢ from 84.3¢).

Cochlear closed down 3.4% at A$128.95 ($98.85) yesterday, but clawed a bit of that back today, closing up 0.2% at A$129.20 ($99.04) per share.

($1 = A$1.3045)

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