Medical equipment maker Fisher & Paykel Healthcare has forecast a significant drop in its first-half earnings as the Covid-related tailwinds which boosted sales fade.
Fisher & Paykel Healthcare's Airvo 2 device used to treat Covid-19 patients Photo: Supplied
It forecast a half-year profit between $85 million and $95m to the end of September compared $222m last year. Revenue is expected to drop to about $670m from $900m.
Fisher & Paykel Healthcare managing director Lewis Gradon said last year saw a dramatic increase in production and sales because of the pandemic, which resulted in the company selling 10 years' worth of hardware in two years as hospitals bought up in anticipation of waves of Covid-19.
"During the most recent waves of the Omicron variant, fewer patients have required hospitalisation and respiratory support. We believe customer stock levels have been elevated during our first half, which impacts our short-term sales."
Gradon said sales overall were still tracking ahead of pre-pandemic levels, but its gross margin of 60 percent was below its long-term target of 65 percent because of increased freight costs, and operating costs were expected to be 5 percent higher.
"This year, we are also experiencing some manufacturing inefficiencies, as we are carefully balancing demand fluctuations and targeted inventory levels with manufacturing throughput - while managing higher rates of absenteeism in our manufacturing workforce due to sickness.
"Although we have reduced our manufacturing cost base over the past six months, manufacturing inefficiencies are likely to persist for this financial year as demand stabilises and inventory levels reduce to our targets," Gradon said.
The company did not give full year earnings guidance because of various uncertainties on customer stock levels and demand, but expected second half revenue to be higher than the first six months.
However, Gradon said the company would press on with research and development for new products, and increase its overseas sales team.
Matt Montgomerie, an investment analyst at broking house Forsyth Barr, called the updated earnings guidance "ugly".
Although the company did not give a full-year forecast, Montgomerie estimated a full-year net profit of about $200m.
The outlook for longer term earnings also looked soft, he said.
"We also expect material financial year 2024 consensus downgrades in the order of 20 to 25 percent."
Fisher and Paykel Healthcare shares fell as much as 9 percent after the update, but trimmed the fall to last trade about 7 percent lower at a two-month low of $19.79. So far this year, the stock's price has fallen 40 percent.
