Cochlear’s financial year 2025 results and outlook
Cochlear’s financial year 2025 (FY25) results delivered a steady, if unspectacular, performance that broadly aligned with the company’s June guidance reset. Revenue came in at $2.34 billion, consistent with market expectations following the downgrade, while underlying net profit landed at $392 million – the low end of the revised $390-400 million range.
These results reflected a year of mixed dynamics: implants and acoustics continued to post strong growth, but the Services segment remained a significant drag on both revenue momentum and operating leverage.
Despite the headwinds, gross margins held at 75 per cent, meeting Cochlear’s long-term target. Expenses, however, crept higher, with operating costs up 10 per cent, driven by a 14 per cent lift in Research and Development (R&D) spending and elevated investment in cloud systems. These technology investments, while strategically important, have compressed near-term margins. Importantly, but perhaps controversially, the company has indicated that from FY26, cloud costs will be treated as “significant items” rather than embedded in underlying earnings, which should improve visibility on core profitability.
Of course, they’re not ‘one-off’ expenses if they have to be paid every year.
The core implant business remains in good health. Cochlear implant revenue rose nearly 13 per cent in constant currency terms in FY25, with unit sales up around 10 per cent as guided. Developed markets led with approximately six per cent growth in volumes, supported by a roughly 10 per cent lift in adult referrals. Emerging markets grew more modestly at three per cent, although the private-pay segment continued to expand. The acoustics segment delivered 22 per cent growth on the back of strong uptake of the Osia implant, particularly in France, Italy and the U.S., where unit volumes surged more than 50 per cent.
In contrast, Services – the segment responsible for device upgrades and after-market support – underperformed sharply. Revenue fell, a reversal from the strong gains recorded in FY24. Management cited the enduring popularity of the Nucleus 7 sound processor, which has dampened the urgency for upgrades, as well as cost-of-living pressures in the U.S., which have made customers more cautious about ‘discretionary’ spending. The subdued Services line was the key driver of June’s guidance cut and remains the biggest uncertainty heading into FY26.
Looking ahead, Cochlear has set FY26 underlying Net Profit After Tax (NPAT) guidance at $435-450 million, implying growth of 11–17 per cent on FY25’s base. The company is counting on a significant new product cycle to help achieve this. The recently approved Nucleus Nexa system and the off-the-ear Kanso 3 processor are expected to reinvigorate the upgrade cycle and boost Services revenue, particularly in the second half of the year as launches roll through major markets.
If it works, the new products should deliver technical and user-experience enhancements that encourage adoption, while also supporting Cochlear’s leading market position.
One way to describe FY25 is as a year of consolidation. A positive view is that management navigated market-specific challenges while maintaining growth in its core implant business and protecting gross margins, even as investment in technology and R&D increased. The key question now is whether the product launches in FY26 can deliver the step-up in Services that management is anticipating. If they can, the combination of revenue mix improvement, cleaner margin optics post-cloud reclassification, and continued strength in implant sales could position Cochlear for a stronger year ahead.
For what it’s worth, the story is less about the minor earnings miss relative to post-downgrade consensus and more about execution in the coming product cycle. FY25 revealed the resilience of Cochlear’s business model; FY26 will test its ability to convert innovation into accelerated earnings growth.
FY25 & FY26 scorecard
Consensus hits and misses (post-June downgrade):
Revenue: $2.34 billion – In line with the ~$2.33–$2.35 billion range most analysts expected.
Underlying NPAT: $392 million – Miss by ~1.5 per cent vs the ~$398 million midpoint of post-guidance forecasts; lands at the low end of management’s $390–$400 million range.
Underlying EPS: $5.98 – broadly in line with adjusted models.
Dividend: $4.30 – in line with consensus expectations.
Gross margin: 75 per cent – met target.
Services revenue: Down – weaker mix, but direction consistent with consensus reset after the June downgrade.
Upside risks for FY26:
Faster-than-expected Services recovery if Kanso 3/Nexa uptake exceeds expectations.
Sustained implant unit growth above 10 per cent as emerging market private-pay expands.
Margin uplift as cloud costs is excluded from underlying earnings from FY26.
Downside risks for FY26:
Slower Services rebound due to upgrade deferrals, particularly in the U.S.
Regulatory or supply chain delays affecting new product rollouts.
Competitive pressures in key developed markets compressing average selling prices
Disclaimer:
The Montgomery [Private] Fund, The Montgomery Fund, and The Australian Eagle Equities Fund own shares in Cochlear. This article was prepared 18 August 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Cochlear you should seek financial advice.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
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