COH earnings slump today as underlying profit drops 9% amid Nexa transition drag
Cochlear earnings slump on Nexa contracting delays and emerging market mixCochlear (ASX: COH) reported HY26 underlying net profit of A$194.8 million, down 9% on the prior corresponding period (10% in constant currency), as the company's flagship Nucleus Nexa cochlear implant…
Cochlear earnings slump on Nexa contracting delays and emerging market mix Cochlear (ASX: COH) reported HY26 underlying net profit of A$194.8 million, down 9% on the prior corresponding period (10% in constant currency), as the company's flagship Nucleus Nexa cochlear implant launch created a transitional drag on both revenue and margins. Sales revenue rose just 1% reported to A$1,176 million — a decline of 2% in constant currency — while gross margin compressed two percentage points to 73%, weighed by a higher mix of lower-priced emerging market business. Statutory net profit was hit harder still, falling 21% to A$161.5 million after A$23.7 million in after-tax cloud computing costs and a A$9.2 million non-cash write-down on the Saluda Medical investment. The interim dividend was held flat at A$2.15 per share, maintaining a 72% payout ratio and 85% franking. Cochlear Implants — units up, revenue flat The core implant segment, representing 62% of group revenue, delivered A$724 million for the half — flat reported and down 2% in constant currency. Units grew a solid 6% year-on-year to 27,016, but the revenue translation was poor: emerging market volumes surged more than 15%, including significant growth in China, but at structurally lower average selling prices due to volume-based procurement arrangements and tiered product mix. In developed markets, the Nexa transition required hospital product registrations and contract renewals, a process that took longer than expected and shifted higher-value sales into the second half. By November and December, however, momentum clearly inflected — key developed markets recorded approximately 10% year-on-year unit growth, with roughly 80% of December implant sales comprising the new Nexa system. Services — modest growth, stronger second half expected Services revenue grew 2% reported to A$311.6 million (down 1% in constant currency), accounting for 26% of group sales. Developed markets were the brighter spot, delivering 4% constant currency growth on the back of a growing eligible recipient base and Nucleus 8 processor upgrade campaigns. Emerging market services revenue declined, partially offsetting developed world gains. Management flagged meaningful second-half tailwinds: the imminent US retirement of the Nucleus 7 processor will trigger a forced upgrade cycle, while the new Kanso 3 sound processor launch is expected to add incremental Services demand in the second half. Acoustics — weak markets, product refresh awaited The Acoustics segment (12% of revenue) delivered A$140.4 million — flat reported and down 3% in constant currency. The Osia implantable bone-conduction device posted a single-digit volume decline in its two largest markets, the US and UK, due to increased competitive pressure, though Western Europe and Australia showed solid growth. Management is pinning its second-half recovery in this segment on the geographic expansion of Osia and the rollout of the new Baha 7 sound processor. Capital position and cash flow Despite the earnings miss, cash generation improved. Operating cash flow rose A$26.9 million to A$136.8 million, and free cash flow increased to A$82.7 million from A$58.7 million in the prior period, assisted by the higher cloud expense add-back and working capital timing. Net cash declined from A$275.7 million to A$172.7 million, primarily due to a A$47.6 million inventory build associated with the Nexa launch, elevated capex of A$40.3 million (directed toward Lane Cove and Kuala Lumpur facility capacity), and timing on dividend and tax payments. The balance sheet remains conservative with no debt concerns, but the step-up in working capital entering the second half is worth monitoring if the Nexa ramp takes longer than guided. What's next for Cochlear Management has reaffirmed FY26 underlying NPAT guidance in the range of A$435–460 million but has explicitly flagged an expectation to land at the lower end — implying second-half net profit of approximately A$240–265 million, or roughly 23–36% higher than the first half. That is a significant skew, but it is supported by identifiable near-term drivers: residual Nexa contract renewals are expected to finalise in Q3, Nucleus 7 US retirement unlocks a structural upgrade wave in Services, and Acoustics should benefit from the Baha 7 and Osia geographic expansion. The stronger Australian dollar, however, is an emerging headwind — guidance was set at A/USD 0.66, and management estimates a ~A$30 million reduction in full-year NPAT at current AUD levels, with sensitivities of approximately A$3 million per cent move in USD and A$4 million in EUR for the second half alone. At approximately 35x FY26 consensus earnings of 690 cents per share, the stock continues to trade at a premium to the market that reflects Cochlear's exceptional franchise qualities — roughly 60% global cochlear implant market share, more than 750,000 recipients underpinning a recurring services revenue base, and a market penetration…
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