Cooper Companies' Q3 2025 Earnings Call: Contradictions Emerge on Market Growth, MyDay Supply, and Inventory Impact

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $1.06B, up 5.7% YOY (2% organic)
• EPS: $1.10 non-GAAP EPS, up 15% YOY
• Gross Margin: 67.3%, up 70 bps YOY
• Operating Margin: 26.1%, expanded vs prior year as operating income rose 8% YOY

Guidance:

• Q4 consolidated revenue: $1.049B–$1.069B (2%–4% organic growth).
• Q4 CooperVision revenue: $700M–$713M (2%–4% organic); headwinds from Clarity and APAC pure-play e-commerce; MyDay conversion timing uncertain.
• Q4 CooperSurgical revenue: $350M–$356M (2%–4% organic); fertility softness persists.
• Q4 non-GAAP EPS: $1.10–$1.14; gross margin slightly lower YOY from tariffs; better operating margin; interest ~$21M; tax 14%–15%.
• Q4 free cash flow ≈ $100M; FY free cash flow ≈ $385M.
• FY26: CVI to outpace market on MyDay momentum, launches, contract wins; CSI improvement with fertility rebound; operating margin expansion despite tariff pressure; ~$2B free cash flow over next 3 years; CapEx normalizing; productivity/efficiency initiatives underway.

Business Commentary:

• Revenue and Profitability Growth:
• Cooper Companies reported consolidated revenues of $1,060,000,000 for Q3, up 5.7% as reported and 2% organically.

• This growth was driven by improved margins, double-digit earnings growth, and robust free cash flow, despite lower than expected revenues in some segments.

• CooperVision Segment Disruption:

• CooperVision reported Q3 revenues of $718,000,000, reflecting 6.3% reported growth and 2.4% organic growth.

• The segment experienced challenges due to a decline in Clarity sales, driven by a preference for premium daily lenses like MyDay, and weaker-than-expected performance in the pure play e-commerce channel in Asia Pac.

• MyDay Product Success:

• MyDay grew double digits in Q3, with successful contract wins and new private label agreements expected to drive future growth.

• The product's success is attributed to new manufacturing capabilities, strategic contract wins, and increased demand due to favorable market positioning and product features.

• Fertility Segment Dynamics:

• Fertility revenues totaled $137,000,000, growing 6% organically, with strength in genomics and consumables.

• Market challenges persist, but the segment is expected to rebound as clinics return to investing, supported by delayed childbirth trends and expanded benefits coverage.

• Tariff Mitigation and Cost Management:

• The company implemented strategies to mitigate tariff impacts by $24,000,000, with a focus on disciplined operating expense management.
• This management approach aims to offset tariff pressures and ensure healthy operating margins in the face of external headwinds.

Sentiment Analysis:

• Management acknowledged revenue shortfall (“revenues were lower than expected”) but highlighted “strong margins, double digit earnings growth and robust free cash flow.” Q4 outlook is modest (2%–4% organic) with headwinds from Clarity and APAC e-commerce, yet FY26 tone is constructive with MyDay capacity resolved, contract wins, and ~$2B FCF over three years.

Q&A:

• Question from Jon Block (Stifel): How should we think about CVI growth in FY26 versus the market and MiSight’s contribution?
  Response: With MyDay capacity resolved, core CVI should at least match market growth, with MiSight adding share gains; upside depends on speed of fit-to-revenue conversion.

• Question from Jon Block (Stifel): Why is MyDay’s success pressuring Clarity, and how do margins compare?
  Response: In some APAC and Americas markets MyDay and Clarity were positioned similarly; clinicians paused Clarity to focus on MyDay fitting; Clarity margins are slightly better than MyDay.

• Question from Larry Biegelsen (Wells Fargo): Why has the contact lens market slowed, and any consumer softness?
  Response: Pricing tailwinds have moderated, especially in APAC e-commerce, with some competitive aggressiveness; there may be modest consumer softness, but not a major driver.

• Question from Larry Biegelsen (Wells Fargo): FY26 EPS/operating income growth, tariffs, FX, and tax?
  Response: Target remains low double-digit constant-currency OI growth over time; tariff impact mitigated; more detail in December; tax around mid-teen (~15.5%) is a fair estimate.

• Question from Jeff Johnson (Baird): Why no sharper Q4 uplift from MyDay if Clarity is pausing?
  Response: Guidance assumes Q4 similar to Q3 given uncertainty on Clarity rebound and MyDay conversion timing; avoiding over-optimism.

• Question from Jeff Johnson (Baird): APAC e-commerce pricing—who and impact?
  Response: Seeing aggressive pricing from large competitors in APAC; losses are low-margin so profit impact is minimal.

• Question from Issey Kirby (Redburn): Scope and rationale of restructuring; MiSight regional trends and SightGlass update?
  Response: Companywide efficiency review (heavy G&A focus) leveraging IT upgrades post-integration; MiSight strong in EMEA, stable in APAC with Japan launch early 2026, slower in Americas; SightGlass with FDA—no update.

• Question from Joanne Wuensch (Citibank): What drives CVI reacceleration and is it mainly MyDay?
  Response: Yes—MyDay capacity, >30 private-label wins, and surge in fitting/trial activity should reaccelerate growth; Clarity still has a role.

• Question from Jason Bender (Piper Sandler): Why is this trade-up dynamic (Clarity→MyDay) different; global pricing outlook?
  Response: In APAC/Americas channels overlapped, prompting a temporary Clarity pause; Clarity being repositioned. Expect ~1% global price increase in 2026 with APAC pressure offsetting Americas.

• Question from David Saxon (Needham): $2B FCF over 3 years—implied margins and ramp; distributor inventory normalization?
  Response: FCF margin stair-steps up as CapEx normalizes and working capital improves; U.S. channel reductions assumed in Q4; APAC e-commerce largely annualized with minimal FY26 spillover.

• Question from Nevan Tighe (BNP Paribas): What drives Q4/FY26 fertility trends?
  Response: Genomics/consumables improving with share gains; APAC cycles still soft but expected to rebound into 2026 as clinics resume capex.

• Question from Brad Bowers for Anthony Petrone (Mizuho): PARAGARD outlook and margin tailwinds?
  Response: PARAGARD volumes declining but pricing and one-handed inserter help; no new competitor yet. FY26 operating margins to expand via SG&A leverage/efficiency despite tariff and mix pressure.

• Question from Robbie Marcus (JPMorgan): What changed since last call and why confidence in FY26 market growth?
  Response: APAC e-commerce weakness persisted and large accounts paused Clarity orders; guidance reset. Market fundamentals support 4%–6%; with MyDay capacity, expect at/above market growth plus MiSight.

• Question from Chris Pasquale (Nephron Research): MiSight growth trajectory and CapEx outlook?
  Response: MiSight growth likely similar YOY given larger base; promos/Japan/MyDay MiSight help. CapEx to decline in dollars and as % of sales, normalizing toward historical 7%–10%.

• Question from Patrick Wood (Morgan Stanley): How was the Clarity vs MyDay dynamic identified?
  Response: Large accounts deviated from normal Clarity order cycles and directly reported pausing Clarity to prioritize MyDay fitting.