Cochlear's Earnings Growth: A Closer Look at the Numbers

As an investor in Cochlear Limited (ASX:COH), you might be wondering why the company's earnings growth rate has lagged behind the 6.1% compound annual growth rate (CAGR) delivered to shareholders. Let's dive into the numbers and explore the factors contributing to this disparity.



Cochlear, the market leader in cochlear implants, has consistently delivered strong revenue growth, driven by technological advancements and market penetration. The global cochlear implants market size was valued at USD 1.9 billion in 2024 and is expected to grow at a CAGR of 7.6% from 2025 to 2034. This growth is attributed to the increasing prevalence of hearing loss and rising awareness and early diagnosis. Cochlear's products and services portfolio, including the Cochlear implant portfolio, Acoustic solutions portfolio, Recipient support tools, and Cochlear Connected Care solutions, has contributed to the company's market leadership and growth.

However, the company's earnings growth has not kept pace with the CAGR delivered to shareholders. Several factors have contributed to this disparity:

1. Services Revenue Decline: Cochlear's services revenue declined by 12% in constant currency, largely due to cost-of-living pressures in the US causing higher rates of cancellations. This decline outpaced the 6% net sales increase, contributing to the disparity in earnings growth.
2. Operating Expenses Increase: Operating expenses increased by 10%, outpacing sales growth. This increase was due to continued investment in R&D and growth initiatives, which impacted earnings growth.
3. Emerging Markets Underperformance: Emerging markets underperformed expectations, with only 3% growth in the first half. This was partly due to delayed tenders in countries like India, which contributed to the disparity in earnings growth.
4. Cloud Spending: The company anticipates increased cloud spending, which is expected to impact earnings growth. This was mentioned in the Q&A section of the earnings call.
5. Gross Margin Headwind: The Chengdu manufacturing site is still in the ramp-up stage, contributing to a slight headwind in gross margin. This is expected to persist for another year or two, impacting earnings growth.

To address the decline in services revenue and improve overall earnings growth, Cochlear has implemented several strategic initiatives:

1. Investment in R&D and growth initiatives: Cochlear has continued to invest in research and development to drive innovation and growth. This includes developing new products and technologies to enhance the user experience and expand the company's market reach.
2. Expansion into emerging markets: Cochlear is looking to expand its presence in emerging markets, where there is significant growth potential. The company is working to improve its performance in these markets, which grew only 3% in the first half of 2025.
3. Addressing cost-of-living pressures: Cochlear is implementing a new CRM and cloud-based marketing automation system to better target and inform customers about upgrades, which can help offset the impact of cost-of-living pressures on services revenue.
4. Improving audiology and surgical capacity: Cochlear is working with clinics to reduce the number of post-surgery appointments, freeing up capacity for evaluations. The company is also leveraging remote care technology to manage patients more efficiently.
5. Expanding product portfolio: Cochlear is expanding its product portfolio to cater to diverse patient needs and improve accessibility for individuals with hearing impairments. The company is developing new products and technologies, such as hybrid solutions that combine acoustic amplification and electrical stimulation, to broaden the scope of eligibility for cochlear implants.

In conclusion, Cochlear's earnings growth rate has lagged behind the 6.1% CAGR delivered to shareholders due to factors such as services revenue decline, operating expenses increase, emerging markets underperformance, cloud spending, and gross margin headwind. However, the company has implemented strategic initiatives to address these challenges and improve overall earnings growth. By investing in R&D, expanding into emerging markets, addressing cost-of-living pressures, improving capacity, and expanding its product portfolio, Cochlear is well-positioned to drive long-term growth and success. As an investor, it's essential to stay informed about these developments and monitor the company's progress to make informed decisions about your portfolio.