Cochlear's First Half 2025 Earnings: Revenue Disappoints Amidst US Cost Pressures

Cochlear Limited, a global leader in implantable hearing solutions, reported its first half 2025 earnings on February 13, 2025, with mixed results that fell short of market expectations. The company's overall net sales increased by 6% in constant currency, driven by a 13% increase in cochlear implant revenue and a 22% rise in acoustics revenue. However, services revenue declined by 12%, attributed to cost of living pressures and higher cancellation rates, particularly in the US.



Underlying net profit increased by 7% to $206 million, aligning with sales growth. The company maintained a strong balance sheet with $383 million in cash, despite inventory buildup for new product launches. The dividend was increased by 8% to $2.15, reflecting a commitment to shareholder returns. Cochlear is on track to help over 50,000 people with implants this year, maintaining its guidance range, albeit at the lower end due to specific challenges.

However, the company's services revenue decline and lower-than-expected earnings have raised concerns. Services revenue declined by 12%, primarily due to cost of living pressures and higher cancellation rates in the US. Cochlear's CEO, Diggory Howitt, acknowledged these challenges and outlined strategies to mitigate them, such as implementing a new CRM and cloud-based marketing automation system to better target and inform customers about upgrades.



Cochlear also faces headwinds from emerging markets, which underperformed expectations with only 3% growth in the first half, partly due to delayed tenders in countries like India. The company anticipates coming in at the lower end of its guidance range due to lower services revenue and increased cloud spending. Additionally, the Chengdu manufacturing site is still in the ramp-up stage, contributing to a slight headwind in gross margin, expected to persist for another year or two.

In response to these challenges, Cochlear is taking several measures to manage its cash position and operating cash flow. The company expects inventory to stay at elevated levels through the end of the financial year and moderate towards the end of calendar 2025. Additionally, Cochlear is investing in cloud spending as part of its final phase of cloud transition, expecting to spend around $40 million for the full year.

Cochlear's first half 2025 earnings highlight the company's resilience in the face of economic pressures and market challenges. While the decline in services revenue is concerning, Cochlear's strategic initiatives and commitment to shareholder returns demonstrate its ability to adapt and overcome obstacles. As the company continues to invest in innovation and expand its global reach, investors will be watching closely to see how Cochlear navigates the evolving market landscape and delivers on its growth potential.