Coloplast reported fiscal first-quarter performance that was largely consistent with Street expectations. Coloplast racked up another quarter of solid midsingle-digit top-line growth (in constant currency) and was helped along with a foreign currency tailwind that is expected to reverse over the coming quarters.
Both the ostomy and continencecare segments continued to outpace the market at 5% and 7%, respectively. Most of the strength came from the U.K., the U.S., and the Nordic region, which offset weakness in southern Europe. In particular, we are reassured to see ostomy products gaining strength in the U.S. (with revenue growing in the 10% to 20% range) where Coloplast was a late entrant relative to its established rivals Hollister and ConvaTec.
Thus far, Coloplast has been plowing ahead to play catch-up in the U.S. Most recently, the firm negotiated a new contract with the major group purchasing organization Novation. This is noteworthy because the GPOs provide Coloplast’s ostomy products with access to a wide swath of hospitals. Nurses and other practitioners who teach postsurgical ostomy patients how to use these products are a key point of contact and introduction to Coloplast’s products. Reaching more new patients in this setting is critical to gaining market share.
Finally, consistent with the previous year, the wound care segment remains weak, with volume in Europe down and more pricing pressure in southern Europe. However, the French government’s recent decision to reject silver wound care products only underscores the long-term challenge that faces this market. With more payers interested in evidence of superior clinical or economic outcomes, the burden is on the wound care competitors to provide those studies.
Unfortunately, much of what passes as evidence in this market tends to be small scale studies that do not meet the gold standard of randomization and comparison with controls. This lack of clinical evidence will soon catch up with the industry now that players are aggressively seeking cost savings.
Analysts are impressed with the 27% quarterly earnings growth that Coloplast achieved on 8% nominal top-line growth. The firm reduced cost of goods sold by 180 basis points, and squeezed out another 250 basis points from its sales, marketing, and administrative expense. This put the firm well on its way to achieving the 30% operating margin we’ve projected for the full year.
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