Fisher & Paykel earnings dip as massive covid tailwinds disappear

Fisher & Paykel Healthcare (ASX: FPH) reported a -28% dip in net profits for the full-year FY22 as the business cycles through a massive earnings bump from a year ago.

The sharp earnings decline seems to be mostly priced-in, with the company’s stock unchanged in early trade.

Earnings at a glance

For the year ended 31 March 2022 (NZ$m)

• Total operating revenue of $1.68m, down -15%

• Gross margin of 62.6%, down 59 basis points

• Total operating expenses of $547.1m, up 3%

• Profit after tax of $376.9m, down -28%

• Cash flow from operating activities of $324.3m, down -48%

• Interim dividend of 39.5 cents per share, up 4%

The great pull forward

“Over the last two financial years we have supplied $880 million of hospital hardware, the equivalent of approximately 10 years’ hardware sales prior to COVID-19,” said CEO Lewis Gradon.

To add some perspective, hospital hardware earnings growth:

• FY22: $1.21bn, down -19% 

• FY21: $1.5bn, up 87% 

• FY20: $801m, up 25%

• FY19: $642.3m, up 12%  

By comparison, the company’s homecare business, which typically generates approximately 40% of Group earnings, has been growing at high single digits in the past four years.

Lack of guidance

Management was light on forward looking guidance, saying that hospital hardware revenue for FY23 is unlikely to continue at FY22 levels.

Obstructive sleep apnea (OSA) diagnosis rates and product availability were also potential challenges that management glossed over.

"New OSA patient diagnoses rates and the availability of treatment hardware are also likely to impact our Homecare product group results in the 2023 financial year," said Gradon.

Margins remain a challenge

"Margins and working capital are difficult to manage given supply chain kerfuffle’s (freight and shipping costs, availability, energy costs) which compounds the additional downward pressure on revenues and earnings from a normalisation in demand. That’s bad," commented Aequitas Investment Management.

"However, we are quite interested in Fisher & Paykel, as a good quality secular growth stock, but have averred due to the valuation. That valuation is improving daily, at the moment."

Fisher & Paykel shares are down almost -40% year-to-date but still trading at a price-to-earnings of 32, amid declining earnings.

Fisher & Paykel 12-month price chart