Business context and reporting period
The Cooper Companies, Inc. (CooperVision contact lenses; CooperSurgical fertility and women’s health products) filed this unaudited Form 10-Q for the first quarter of fiscal 2024, the three months ended January 31, 2024. Comparative figures are for the three months ended January 31, 2023. Per-share and share data were retrospectively adjusted for the four-for-one stock split effective February 16, 2024.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 or comparison |
|---|---|---|
| Net sales | $931.6 million | $858.5 million; up 8% |
| Gross profit / margin | $623.8 million / 67% | $558.5 million / 65% |
| Operating income / margin | $153.1 million / 16% | $149.5 million / 17% |
| Net income | $81.2 million | $84.6 million |
| Diluted EPS | $0.41 | $0.43 |
| Operating cash flow | $122.7 million | $166.6 million |
| Capital expenditures | $118.1 million | $83.0 million |
| Cash and cash equivalents | $135.2 million | $120.8 million at October 31, 2023 |
| Total debt | $2,772.3 million | $2,569.2 million at October 31, 2023 |
Revenue growth was driven by CooperVision, up 7% to $621.5 million, and CooperSurgical, up 12% to $310.1 million. CooperVision toric and multifocal sales grew 14%; CooperSurgical office and surgical sales grew 16%, partly reflecting the Cook Medical asset acquisition. Segment operating income was $154.8 million for CooperVision (down from $160.1 million) and $24.0 million for CooperSurgical (up from $5.8 million).
Gross margin improved mainly from efficiency gains and pricing. Higher operating expenses, interest expense, and the tax rate offset sales growth: the effective tax rate was 32.4%, compared with 30.7%. Working capital was $829.0 million, versus $735.9 million at October 31, 2023.
Material changes and notable items
- Operating cash flow declined, primarily due to operating-capital movements, including lower accounts payable; the prior-year comparison also included a $31.8 million release of SightGlass Vision contingent consideration that benefited CooperVision expenses.
- Investing cash outflow increased to $324.1 million, including $200.0 million paid at closing for the Cook Medical asset acquisition and higher capital spending. The $300.0 million purchase price includes two $50.0 million payments due in November 2024 and November 2025; purchase accounting remains preliminary.
- Debt increased, including a $200.0 million draw on the revolving credit facility associated with the acquisition. The company had $912.6 million available under that facility and reported compliance with all debt covenants.
- In December 2023, the board ended the semiannual dividend. No shares were repurchased during the quarter; $256.4 million remained authorized for repurchases.
- The company entered into a lease to expand capacity, expected to commence in fiscal 2025, with estimated undiscounted payments of $73.0 million over 25 years.
Outlook, risks, and contingencies
Management expressed optimism about long-term prospects in contact lenses and health care but did not provide quantitative guidance in the supplied filing text. It cautioned that macroeconomic and political uncertainty, inflation, foreign exchange, regulation, trade barriers, and supply-chain disruption could adversely affect sales, cash flow, and performance. Other cited risks include competition, product acceptance or recalls, regulatory approvals, acquisition integration, cybersecurity and operational disruptions, and variable-rate debt. Management stated that cash, expected operating cash flow, and available credit should cover anticipated needs for at least 12 months from issuance of the financial statements; additional financing, if needed, may not be available on favorable terms or at all.
The company reported ordinary-course legal matters and did not believe their resolution would materially adversely affect financial condition or results. It reported no material changes to previously disclosed risk factors. The filing also notes that foreign-exchange movements can affect results; interest-rate swaps covered $1.6 billion of notional exposure, and management said a 100-basis-point rate change would not materially affect quarterly interest expense after hedging.
Investor facts to verify
- Whether revenue growth, gross-margin improvement, and segment trends continue, particularly CooperVision’s lower operating income and CooperSurgical’s acquisition-related growth.
- Whether operating cash flow improves as working-capital movements normalize, given the quarter’s lower cash generation and elevated capital spending.
- Cook Medical integration, final purchase-price allocation, and the effect of acquisition-related amortization, expenses, and future installment payments.
- Debt repayment and refinancing plans ahead of the 2020 credit facilities’ April 2025 maturity, as well as interest-rate and liquidity exposure.
- The consequences of ending the dividend and the timing and terms of the capacity-expansion lease.