Australia | 10:30 AM
Fisher & Paykel Healthcare's first half saw lower costs overcoming a drag from US tariffs. Declining US vaccination rates could provide a boost in the second half.
- Fisher & Paykel Healthcare's H1 beats on cost efficiencies
- Increases margin despite US tariffs
- Top-end guidance achievable on lower US vaccination rates
- Earnings growth forecasts superior in the sector
By Greg Peel
New Zealand-based Fisher & Paykel Healthcare ((FPH)) is a leading designer, manufacturer and marketer of products and systems for use in acute and chronic respiratory care, surgery and the treatment of obstructive sleep apnea.
The company’s first half FY26 (March year-end) proved significantly ahead of expectations on a slight revenue beat supported by lower selling, general & administrative (SG&A) and R&D spending compared to consensus.
Brokers are nevertheless quick to point out the first half was flattered by multiple factors.
These include the pull-forward of some CPAP (continuous positive airway pressure) device sales, outperformance of hospital hardware (up 21%) that is not expected to repeat in the second half, opex patterns that mean full year spending growth will be in the high single-digits rather than the 10% previously expected, and foreign exchange movements.
Constant currency earnings rose 26% thanks to lower SG&A and R&D spending. Management suggested R&D spend will be below sales growth for the next two years. Constant currency revenue growth of 12% featured a slight Hospital 'beat' reflecting higher device sales, but Homecare missed on lower OSA (obstructive sleep apnoea) mask share, UBS notes.
Management expects lower device sales in the second half, partly reflecting Homecare benefiting from an Asian tender win in the first. Hospital consumables sales growth rose from 11% in the prior half to 14% in the first half driven by HFT (high-flow therapy) adoption and wider global IV use post covid. Slower OSA mask growth (6%) reflects tougher full-face competition.
Full-face competition will lift again, UBS suggests, with two recent ResMed ((RMD)) releases, which offsets gains from Fisher & Paykel's Duet and Nova Micro mask releases.
The gross margin rose 110 basis points in the first half thanks to manufacturing efficiencies and a lower New Zealand dollar countering an initial US tariff impact.
The Trump Factor
The gross margin grew to 63%, supported by continuous improvement activities leading to efficiency gains, and included a -32bps drag from the US tariff impact.
Management expects an annualised impact of around -130bps from current tariffs, with a -75bps impact in FY26. Despite this, management anticipates net 50bps of FY26 margin expansion in constant currency, and still expects to achieve its gross margin target of 65% by FY28.
Unsurprisingly for Jarden, no comment was offered on the FY27 risk of US section 232 tariff introductions. Section 232 tariffs aim to protect US “national security”.
The Trump administration has already used this tool to raise levies on aluminium, buses, cars and car parts, copper, furniture, lumber, steel, timber, and trucks, and has launched Section 232 investigations into nine other types of products.
Jarden’s sensitivity analysis --based on steel and aluminium sector precedents-- suggests a potential revision size at the profit line of between -9% to -22% for FY27. This sensitivity also assumes Homecare products are exempt under Nairobi protocol protection.
The Nairobi Protocol covers goods specially designed or adapted for the use or benefit of people with disabilities.
UBS incorporates the US country tariff impact of -NZ$12m in FY26 with exemptions for Mexico (where Fisher & Paykel manufactures) and Homecare imports, but excludes any future US medical device tariffs.
The company is notable among Citi’s coverage universe in that it treats tariffs as a cost of doing business, weighing up efforts to reduce with the opportunity cost of spending time on growth activities. The company has a large range of initiatives which have more than offset any damage this time around.
Goods manufactured in Mexico, where the company has substantial operations, are exempt under the USMCA. The USMCA is due for review in 2026, although Citi does not have a strong sense of the risk anything changes.
The RFK Jr Factor
Fisher & Paykel Healthcare was a major beneficiary of covid, along with other manufacturers of respiratory devices such as hospital ventilators.
Indeed, Canaccord Genuity points out the company is “materially more valuable” compared to pre-covid times, recalling that the pandemic brought High-Flow Nasal Cannula (HFNC) to new global audiences (especially in emergency care), which subsequently kept using it in preference to conventional oxygen.
As covid risk eases globally, flu risk is rising, and no more so than in the US. Fisher & Paykel Healthcare continues to message that reaching the top of its upgraded guidance range is a scenario commensurate with a severe flu season, as was the case last year (northern winter).
Often severe flu seasons are followed by weaker ones, Citi notes, but this can be attributed to several factors, including dominant flu strains similar to the prior year (some cross protection typically occurs) and vaccine uptake.
US health secretary Robert F. Kennedy Jr’s antivax stance is leading to declining vaccination rates in the US for everything from measles to the flu. See also CSL's ((CSL)) struggles in this segment.
Brokers agree this unfortunate reality provides upside risk for Fisher & Paykel Healthcare. Morgan Stanley notes industry participants expect lower vaccination rates for the 2025-26 flu season.
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