Cochlear Ltd (ASX: COH) shares are having a tough start to the day on Thursday.
In morning trade, the hearing solutions company's shares are down 8% to $310.26.
As a comparison, the ASX 200 index is currently up 0.4% to 7,879.5 points at the time of writing.
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Why are Cochlear shares sinking?
Investors have been selling down the company's shares today following the release of its full year results for FY 2024.
As we covered here, Cochlear reported a 15% increase in sales revenue to $2,258 million and a 27% jump in underlying net profit to $387 million. This allowed the Cochlear board to increase its final dividend by 20% to $2.10 per share. It also announced a new $75 million share buyback.
The key driver of the company's growth in FY 2024 was its Cochlear implant business. It achieved an 18% increase in revenue to $1,329.6 million. This was driven by a 9% increase in Cochlear implant units to 48,040, which reflects strong growth across the developed markets driven by the adults and seniors segment.
Given that this result looks strong on paper, investors may be wondering why Cochlear shares are falling today. Let's now dig deeper into that.
What's going on?
Cochlear's guidance for FY 2024 was net profit of $385 million to $400 million.
So, while the company achieved its guidance, its profit of $387 million was at the very bottom end of its range.
It is also worth noting that the market was pricing in more than this. For example, the consensus estimate according to FactSet was for a profit of $397 million in FY 2024.
What's next?
Also potentially weighing on Cochlear shares was its guidance for FY 2025.
While management expects its sales revenue to grow by around 10%, its underlying profit is only expected to grow by 6% to 11%.
Management commented:
We continue to target sales revenue growth of around 10%, with a net profit margin (pre-cloud investment) of around 18%. For FY25, we aim to help over 50,000 people to hear with a cochlear or acoustic implant, and expect to deliver underlying net profit of $410-430 million, a 6-11% increase on FY24.
Investors may be concerned that its valuation will be looking stretched if it only achieves the low end of its profit guidance again in FY 2025.
Cochlear shares remain up 28% since this time last year despite today's pullback.
