“The market has been prepositioning over the last three, four, five weeks for an upgrade but even acknowledging that I think today’s revenue guidance was stronger than what I and clearly the market had thought it was going to be.”
F&P attributed the upgrade to increased sales in China due to Covid and the early start to flu season although this now appears to be easing.
Montgomerie said it was really hard to know the extent China’s Covid outbreak but the strength of the revenue forecast showcased the organic or underlying high-flow revenue was still strong which reflected the increased use of the higher hardware base that was sold through Covid over the last two or three years.
“The reported numbers are misleading in China so it is hard to know the extent of how bad Covid is right now but for sure it’s a driver of the upgrade.”
Gross margin guidance of ~61 per cent was unchanged but using consensus margin assumptions, implies ~$293 million earnings before interest and tax versus $274m consensus (wide range from analysts of $236-305m).
Montgomerie said the company had retained its gross margin and operating expenditure guidance which was very much consistent with Forsyth Barr estimates.
Revenue would still be down on the prior period but it was only mid-August last year that the company came out with a reasonable downgrade and so this was quite a change in the last four or five months, he added.
Full-year operating revenue was $1.68b in the prior period. That was already down from $1.97b in the March 2021 year.
Shane Solly, portfolio manager at Harbour Asset Management, described the revenue guidance as an “impressive upgrade”.
“It has been interesting investing in Fisher & Paykel Healthcare in the last little while. The company has some amazing products. It has been really hard for them to provide insight as to where they have been travelling in terms of demand their revenue.”
He said 18 months the company had a lot of product going to the US and the rest of the world. “That was a really high level for them. They are no longer lapping that period anymore. They have been really transparent with investors in terms of saying we don’t know where inventory levels are, how much demand is going to come through.”
Solly said the reopening of China had seen a massive Covid wave go through while at the same time flu had hit the US. “That is supporting demand for Fisher and Paykel’s respiratory consumables.”
F&P chief executive Lewis Gradon said while operating revenue had fallen in the wake of the Covid-19-related demand, the company was seeing increased sales of its hospital hardware and consumables in China as it managed the current Covid-19 wave.
It also saw demand for hospital consumables in North America in the final months of 2022 due to an early start to the flu season and the prevalence of the respiratory syncytial virus.
It retained its second-half constant currency gross margin guidance, however.
Constant currency removes the impact of exchange rate movements.
In November, the company said it expected constant currency gross margin for the second half to improve from the first half by approximately 200 basis points.
Gross margin was 59.8 per cent in the six months to September 30.
“Our rapid response to recent demand surges in both China and North America includes both positive and negative short-term impacts to our gross margin,” said Gradon.
“While these impacts are ongoing, we currently believe they are unlikely to materially change the second half constant currency gross margin guidance that we provided in November 2022.”
He also doesn’t expect any material impact to the full-year constant currency operating expense growth target of 8 per cent given in November.
Its current targets are based on the kiwi dollar trading at 63 US cents and 59 euro cents versus 58 US cents and 58 euro cents in November.
F&P is due to report its full-year result in late May.
- Additional reporting BusinessDesk
