The Cochlear Ltd (ASX:COH) share price fell 3% to $166 this morning after the company released its half year results. Revenues at the hearing aid manufacturer grew 6% to $639.6 million, and statutory net profit after tax fell 1% to $110.8 million.
The decline in statutory net profit was due to a $5 million write-off of Cochlear's deferred tax assets, a side effect of lower US corporate tax rates.
Over the full year, tax asset write-offs are expected to reduce net profit by around $3 million to $4 million, with tax savings starting to make a positive contribution in the second half (the lower tax rate went into effect on 1 January 2018).
From a business perspective, Cochlear's business performed strongly with the number of units shipped in developed markets growing by 12%.
Units in emerging markets fell, which the company attributed to the timing of tenders, including a Chinese tender awarded in October 2017 that will start shipping in the second half. Currently the company has $107 million cash and cash equivalents in the bank, and has $244 million in debt.
Cochlear gave an outlook for the full year, including a forecast statutory net profit of $240 million to $250 million after currency headwinds are taken into account.
Developed market unit sales are expected to continue growing, with emerging market volume improving thanks to the Chinese tender. Research & Development (R&D) expenditure is expected to be around $160 million to $170 million, compared to $150 million in 2017.
Despite the lower reported earnings, Cochlear increased its dividend 8%, from $1.30 to $1.40 per share. Basic earnings per share were $1.93, pricing Cochlear at more than 40x estimated full year earnings. Using Cochlear's $240 million profit forecast, the company is currently trading at around 40x full year earnings – a lofty price even for a great business like Cochlear. I like Cochlear a lot, but I think it is fully priced and I'm not a buyer at today's prices.
