Coloplast Earnings: Higher Input Costs and Foreign Exchange Put Pressure on 2023

Narrow-moat Coloplast posted fiscal second-quarter results that keep it on track to meet our full-year expectations, and we’re leaving our fair value estimate unchanged. The firm continues to shake off lingering effects of the pandemic, especially in China, where recently lifted lockdown measures have begun to allow for more patient volume and growth in advanced woundcare. However, the higher inflation environment also means the firm is still juggling higher materials, freight, and energy costs. Further, management said wage inflation in Hungary has been running in the double digits. All of these factors as well as the initial startup costs of new manufacturing in Costa Rica and trends in foreign exchange leave us cautious about the firm’s goal of returning to 30% operating margin by fiscal 2024. We currently assume that those higher manufacturing costs won’t abate until fiscal 2025.