Cooper Companies, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Quarter and six months ended April 30, 2024. Unaudited results are compared with the corresponding 2023 periods. The company operates CooperVision, which sells contact lenses, and CooperSurgical, which serves fertility and women’s health markets.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $942.6 million | $877.4 million | $1,874.2 million | $1,735.9 million |
| Gross profit | $631.2 million | $582.9 million | $1,255.0 million | $1,141.4 million |
| Operating income | $161.7 million | $96.3 million | $314.8 million | $245.8 million |
| Net income | $88.9 million | $39.8 million | $170.1 million | $124.4 million |
| Diluted EPS | $0.44 | $0.20 | $0.85 | $0.63 |
| Operating cash flow | — | $233.7 million | $290.8 million |
- Q2 sales increased 7%; operating income rose 68% and net income more than doubled. Six-month sales increased 8%, operating income 28%, and net income 37%.
- Gross margin was 67% in both Q2 and the six-month period, versus 66% in each prior-year comparison; management attributed the improvement primarily to efficiency gains and pricing. Q2 operating margin was 17%, versus 11% a year earlier.
- CooperVision sales rose 8% in Q2 and 7% for six months, led by toric and multifocal lenses. CooperSurgical sales rose 6% and 9%, respectively; office and surgical growth included the Cook Medical assets acquired in November 2023. Q2 fertility sales were approximately flat.
- Interest expense increased to $28.9 million in Q2 and $58.8 million for six months, primarily due to higher debt balances and interest rates. Effective tax rates were 31.6% and 32.0%, respectively, down from 39.3% and 33.7% in the comparable periods.
Cash, debt and liquidity
- Cash and cash equivalents were $112.4 million at April 30, 2024. Total debt was $2.713 billion, compared with $2.569 billion at October 31, 2023; long-term debt was $2.671 billion.
- Six-month operating cash flow was $233.7 million, down from $290.8 million, primarily reflecting working-capital changes, including higher receivables and lower accrued liabilities. Investing cash outflow was $398.9 million, including $200.0 million paid for the Cook Medical acquisition and higher capital spending. Capital expenditures were $192.2 million.
- Working capital was $906.5 million, up from $735.9 million at fiscal year-end, primarily because of higher receivables, prepaid and other current assets, and inventories. Management said cash, future operating cash flow, and available credit were expected to meet anticipated needs for at least 12 months from issuance of the statements.
- On May 1, 2024, after quarter-end, the company entered a $2.3 billion revolving credit facility maturing in 2029. It used $1.170 billion to repay all borrowings under the 2020 term loan and revolving facility and terminated that agreement. At April 30, the company reported compliance with debt covenants.
Material changes, outlook and risks
- The November 2023 Cook Medical asset acquisition had a stated purchase price of $300 million, including $200 million paid at closing and two future $50 million payments. The acquisition added $107.2 million of goodwill and acquired intangible assets.
- Year-over-year CooperSurgical operating income comparisons were substantially affected by a $45 million termination-fee accrual in 2023 related to Cook Medical reproductive-health assets. CooperVision’s prior-year comparison also included a $31.8 million release of SightGlass Vision contingent consideration; this affected reported expenses and cash-flow comparisons.
- The company ended its semiannual dividend declaration in December 2023. No share repurchases occurred during the six months; $256.4 million remained authorized under the repurchase program. A four-for-one stock split took effect February 16, 2024; reported share and per-share figures have been adjusted.
- Management expressed optimism about long-term contact-lens and healthcare markets but provided no specific numerical sales or earnings guidance in the supplied filing text. It cited uncertainty from macroeconomic and political conditions, inflation, foreign exchange, regulatory developments, supply-chain disruptions and trade barriers.
- Other disclosed risks include variable-rate debt and interest-rate movements, acquisition integration and financing, competition and product acceptance, product liability and recalls, regulatory approvals, cybersecurity and operational disruptions, raw-material availability, and international and healthcare regulation. A hypothetical 10% currency-rate movement was estimated to change quarterly operating income by approximately $28.3 million; management said a 1% interest-rate change would not materially affect quarterly interest expense after swaps.
- The company reported no material adverse expected effect from pending ordinary-course legal matters and no goodwill or intangible-asset impairment in the six months. A new 25-year capacity-expansion lease is expected to commence in fiscal 2025, with estimated undiscounted payments of $73 million.
Important facts for investors to verify
- How much of revenue growth reflects underlying volume, pricing and mix versus acquisitions and foreign-exchange movements.
- Whether working-capital investment, particularly receivables and inventories, reverses and supports cash conversion.
- The effect of the new credit facility on borrowing costs, maturities, covenant headroom and debt levels.
- Whether Cook Medical assets deliver expected growth and returns, considering acquired intangibles, amortization and deferred purchase payments.
- Future operating performance in CooperSurgical fertility and the sustainability of CooperVision’s product-led growth and margin gains.