Fisher & Paykel Healthcare’s Tariffs Annoyance

This story features FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED, and other companies. For more info SHARE ANALYSIS: FPH

The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

A consensus-beating FY25 result from Fisher & Paykel Healthcare was undermined by disappointing FY26 guidance, with tariffs partly to blame.

-Fisher & Paykel Healthcare’s FY25 result beats consensus
-FY26 guidance falls short on tariff impact
-Margin expansion trajectory delayed
-Brokers maintain positive views

By Greg Peel

New Zealand-based and Australian-listed medical devices company Fisher & Paykel Healthcare ((FPH)) reported FY25 (end-March) revenue and profit ahead of consensus on a better than expected gross margin and lower operating expense.

The company manufactures sleep apnoea and respiratory devices and supporting software for hospital and home use.

As the manufacturer is specifically reliant on its presence in the large US market, forex movements are influential and, more recently, so are Trump’s tariffs.

More on tariffs later.

Fisher & Paykel Healthcare demonstrated strong double-digit growth across almost all product segments from new products and change in clinical practice, with an added boost from a severe US flu season. Hospital revenue grew 18% year on year, albeit 21% in the first half and 15% in the second. Hardware grew 18% and Consumables 18%, with the company noting broad-based growth across its portfolio.

Homecare revenue advanced by 13% year on year (14% first half, 13% second), underpinned by a strong contribution from new masks. The key call-out for this division, suggests Jarden, was Consumables (mostly sleep apnoea masks) fading on a year-year basis (16% first half, 11% second, I sense a pattern), attributed to multiple new masks being introduced by competitors.

On the other hand, gross margin snuck up to 63% for the year, and 64% in the second half. Margin strength came from a combination of improvement initiatives and overhead efficiency. The earnings margin rose to 25% (second half 27%). The strong second half performance was attributed to gross margin improvement and lower-than-expected selling, general & administrative costs.

Tariffs

Management reassured on the tariff headwinds, albeit the situation remains (in exquisite understatement) “fluid”.

The overwhelming majority of products made in Mexico, as Citi notes, are compliant with the USMCA (US-Mexico-Canada free trade agreement), making them exempt from tariffs. Products from the Homecare division for the treatment of sleep apnea are also exempt from tariffs under the Nairobi Protocol.

The Nairobi Protocol to the Agreement on the Importation of Educational, Scientific, and Cultural Materials Act of 1982 established the duty-free treatment for certain articles for the handicapped.

This leaves a 10% US tariff on hospital products made in New Zealand. Management estimates the gross margin impact at -75 basis points (-50bps in FY26, -25bps in FY27). Tariffs have effectively added another year to margin recovery timelines (the company is targeting 100bps annual of gross margin GM improvements).

Guidance

Wilsons believes at current valuation levels, the shares could be fully priced for perfection. Therefore, the market was noticeably discontent when FY26 profit guidance at the midpoint was -3% below consensus. However, management has historically aimed to guide conservatively, Wilsons notes, and appears to have done so again by factoring in FY26 potential tariff impacts.

Aside from this, Wilsons believes there was very little to fault in this FY25 result. Morgan Stanley agrees the -4% fall in share price post result reflected weaker than expected revenue and profit guidance.

On the earnings call, management noted the top end of revenue guidance assumes a Northern Hemisphere flu season similar to that of FY25, and the bottom end a materially weaker flu season compared to FY25. Assumed constant currency growth rates for Consumables across both divisions are similar to the second half performance, Jarden notes, and are likely a conservative starting point.

Macquarie notes half of the gain in margins in FY25 was derived through overhead efficiencies and lower freight costs. Management sees a flattening of freight gains in FY26, leading to an anticipated 50bps of margin expansion, inclusive of a -50bps drag from tariffs. This informs management’s expected annualised impact of -75bps from current tariffs and policies.

Management expects to achieve its gross margin target of 65% by FY28. Macquarie and other brokers have adopted this timeline in their modeling.

Worthy of Valuation

While noting multiples are elevated, Morgans Stanley points out Fisher & Paykel Healthcare compares favourably relative to the broker’s industry coverage when considering earnings growth, return on invested capital and balance sheet position.

Morgan Stanley has lifted its price target to A$35.90 from A$34.00, and given an attractive growth outlook and some 12% upside relative to targets, moves to Overweight from Equal-weight on “both stocks” (implying rival ResMed ((RMD)) is the other stock in the broker’s industry coverage).

Macquarie sees the company’s medium to longer-term outlook as favourable, supported by the uptake of new apps consumables, OSA (obstructed sleep apnoea) patient growth and increased utilisation from changing clinical practices. Macquarie retains Outperform, increasing its target to NZ$39.30 from NZ$38.90.

Note the AUD/NZD exchange rate is currently close to parity.

Wilsons expects gross margin expansion and operating leverage over the medium term from continued strong growth and management’s ability to realise operational efficiencies. This broker is forecasting an annual compound earnings growth rate of 16% over FY25-FY28 and maintains an Overweight rating at a target of A$37.58, up from A$35.00.

Wilsons notes its target implies an enterprise to earnings multiple of 33.7x, which sits above the stock’s last five-year trading average of 32x and captures post-covid de-stocking.

Citi’s target increases to NZ$35.50 from NZ$32.00 on earnings changes and roll-forward, implying an FY27 PE of 42x (which is a 5% premium to the ten-year average). Citi upgrades to Neutral from Sell given the manageable tariff impact and more reasonable valuation (following the result sell-off).

Jarden maintains its Neutral rating, balancing a strong growth outlook with duration and track record of execution against what it sees as limited valuation support at current pricing. Jarden’s target rises to NZ$34.50 from NZ$33.30.

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