Cooper Companies, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Three and six months ended April 30, 2022. Unaudited results; amounts below are in U.S. dollars.
Business context and results
Cooper operates through CooperVision, which sells contact lenses, and CooperSurgical, focused on women’s health, fertility and related services. Reported growth reflected stronger demand and the Generate Life Sciences acquisition, completed in December 2021.
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Net sales | $829.8 million (+15%) | $719.5 million | $1,616.9 million (+15%) | $1,400.0 million |
| Gross profit / margin | $532.5 million / 64% | $487.1 million / 68% | $1,050.9 million / 65% | $937.8 million / 67% |
| Operating income / margin | $132.7 million / 16% | $143.2 million / 20% | $263.6 million / 16% | $276.6 million / 20% |
| Net income | $126.6 million | $117.5 million | $221.8 million | $2,218.6 million |
| Diluted EPS | $2.55 | $2.36 | $4.45 | $44.65 |
| Operating cash flow | $131.8 million | $192.6 million | $297.8 million | $340.3 million |
Q2 revenue increased 6% at CooperVision to $553.8 million and 40% at CooperSurgical to $276.0 million. CooperSurgical’s increase was substantially acquisition-related. For the six months, segment sales rose 8% and 35%, respectively. Foreign exchange reduced Q2 sales by approximately $34.5 million across the businesses; management reported constant-currency sales growth of 11% at CooperVision and 44% at CooperSurgical.
Cash flow, debt and liquidity
- First-half capital expenditures were $100.5 million; management-reported free cash flow was $197.3 million, down from $234.5 million a year earlier. Q2 free cash flow was $88.4 million, down $54.3 million year over year.
- Cash and cash equivalents were $399.2 million at April 30, 2022. Total debt was $3,252.4 million, up from $1,479.0 million at October 31, 2021. Working capital was $89.8 million, compared with $733.2 million at fiscal year-end.
- The company had $1,288.7 million available under its revolving credit facility. The $840 million 364-day term loan matures November 1, 2022; other major term loans mature in 2025 and 2026. The company reported covenant compliance, including a 2.59:1 total leverage ratio against a maximum of 3.75:1, and expects to meet obligations for at least 12 months.
Material changes, outlook and risks
- Margins and operating income declined despite revenue growth, primarily due to higher SG&A and amortization, unfavorable currency effects and costs to exit the contact lens care business. CooperSurgical operating income fell to $10.9 million in Q2 from $23.1 million; acquisition-related amortization and SG&A contributed to the decline.
- Q2 net income included a $48.4 million investment gain in other income, primarily reflecting the $57.4 million gain on remeasurement of CooperVision’s retained SightGlass Vision joint-venture interest. CooperVision also recognized gains related to amended contingent consideration. These items make reported earnings less indicative of underlying operations.
- The six-month prior-year comparison is distorted by a $1,987.9 million deferred tax benefit from a 2020 intra-group intellectual-property transfer. The prior-year six-month effective tax rate was negative 704.2%, versus 22.3% in FY2022.
- Cooper initiated an exit from its non-core contact lens care business, expecting completion by fiscal year-end 2022. Q2 charges were $20.7 million; total charges are estimated at $30–$40 million.
- Generate was acquired for approximately $1.663 billion. Purchase accounting remains preliminary. A proposed $875 million acquisition of Cook Medical’s Reproductive Health business was subject to definitive agreement, regulatory approvals and other closing conditions.
- No specific revenue or earnings guidance was provided in the supplied filing text. Management expressed optimism about long-term market prospects but cited uncertainty from COVID-19, inflation, foreign exchange, Russia’s invasion of Ukraine, supply constraints, regulation, interest rates, acquisition integration and higher leverage. Management said COVID-related costs had included production inefficiencies, higher freight and raw-material delays, though it reported no significant manufacturing or supply disruption at filing time.
- The company stated that ordinary-course legal proceedings were not expected to have a material adverse effect. It reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of sales growth and CooperSurgical performance is attributable to Generate and other acquisitions versus organic demand, and whether integration delivers expected benefits.
- The final purchase-price allocation for Generate and the status, terms and financing of the proposed Cook Medical transaction.
- Progress and final costs of the contact lens care exit, and the effect on future sales and margins.
- Debt refinancing or repayment plans for the $840 million loan due November 2022, interest-rate exposure and covenant headroom.
- Underlying earnings excluding the SightGlass Vision and contingent-consideration gains, and the extent to which margin pressure, currency effects and COVID-related costs persist.