Masimo Corporation (MASI) Q1 2025 Earnings: Core Strengths Amid Tariff Headwinds

Masimo Corporation (NASDAQ: MASI) delivered a mixed but strategically significant Q1 2025 earnings report, highlighting robust performance in its core healthcare business while grappling with the lingering impact of tariffs and the planned divestiture of its non-core Sound United audio division. The results underscore the company’s resilience in its medical technology segment but also reveal vulnerabilities tied to external macroeconomic factors. Here’s a breakdown of what investors should know.

Core Healthcare Business Shines, Despite Headwinds

Masimo’s healthcare revenue grew 10% year-over-year to $371 million on a constant currency basis, driven by strong demand for its medical devices and consumables. Capital equipment revenue surged 32%, fueled by large tender contracts—a key milestone for the company’s global expansion. Gross margins improved to 63.1%, while operating margins expanded to 28.8%, reflecting operational efficiency gains. Non-GAAP EPS rose 56% to $1.36, signaling profitability even as tariffs and discontinued operations weighed on headline results.

The company’s strategic focus on expanding its product portfolio beyond pulse oximetry into advanced monitoring categories—such as capnography (respiratory monitoring) and hemodynamics (cardiac output tracking)—is a promising growth lever. Management emphasized leveraging its leadership in noninvasive monitoring to address unmet clinical needs, which could drive long-term revenue diversification.

Tariffs and Trade Dynamics: A Near-Term Challenge

While Masimo’s core operations are thriving, tariffs continue to pose a significant hurdle. For fiscal 2025, tariffs are expected to reduce operating margins by 210–250 basis points and EPS by $0.45–$0.50. The company’s mitigation strategies include re-sourcing raw materials, adjusting supply chains, and exploring pricing adjustments. CFO Michael Macdonnell cautioned investors not to extrapolate current tariff impacts into 2026, citing ongoing efforts to restructure operations and the fluidity of U.S.-China trade negotiations.

Investors should note that tariffs are a temporary drag, not a structural issue. The CFO’s emphasis on margin expansion in Q1 (despite tariffs) suggests that operational discipline remains intact. If mitigation efforts succeed by late 2025, as management expects, margins could rebound strongly in 2026.

Divesting Sound United: A Necessary Reset

The $218 million net loss from discontinued operations stemmed from a $295 million impairment charge related to Sound United, Masimo’s struggling consumer audio business. Management confirmed plans to divest the division entirely, with the sale expected to close by year-end. Proceeds from the sale will likely be used for share repurchases, a shareholder-friendly move that could boost EPS if executed efficiently.

This decision aligns with Masimo’s focus on its high-margin healthcare core. While the impairment charge was painful, it’s a one-time adjustment, and the company’s balance sheet remains strong with $547 million in cash and equivalents as of Q1.

Guidance and Risks

Masimo reaffirmed its fiscal 2025 revenue guidance of $1.5–$1.53 billion (8–11% constant currency growth) and EPS guidance of $5.30–$5.60 (excluding tariffs). The Q1 shortfall in consumables sales—a timing issue tied to a large tender—will normalize, per management. The company also downplayed the impact of a recent website/system incident, which it deemed immaterial to long-term results.

However, risks remain. GuruFocus flagged six “warning signs” for MASI, though specifics weren’t detailed. Potential concerns could include dependency on large tender contracts, geopolitical risks to supply chains, and execution risks around the Sound United sale.

Conclusion: A Buy for Growth Investors with a Long View

Masimo’s Q1 results paint a clear picture: its healthcare business is firing on all cylinders, with capital equipment and advanced monitoring driving growth. While tariffs and the Sound United impairment created noise, the core metrics—margin expansion, revenue diversification, and cash generation—are solid.

The stock’s valuation, trading at ~20x forward non-GAAP EPS, appears reasonable given its 10–15% revenue growth trajectory and margin upside. The planned share buybacks post-Sound United sale could amplify returns. Investors should prioritize Masimo’s ability to navigate tariffs by year-end . If mitigation efforts succeed, the stock could outperform in 2026. For now, this is a hold for cautious investors but a buy for those willing to bet on its long-term trajectory in critical healthcare tech.

In short: Masimo’s fundamentals are strong, but tariffs and macro risks demand patience. The path to 2026 looks navigable—if not advantageous—for a company with this level of innovation and focus.