COOPER COMPANIES, INC. Q3 FY2026 earnings call

• Strategic Review Conclusion: The Board concluded its strategic review of Cooper Surgical, deciding against a sale due to a temporary valuation disconnect caused by competitive entrants in the non-hormonal IUD market and the fertility litigation settlement. Shareholders are deemed better served by continued ownership.
• Cooper Vision Operational Strategy: Management proactively reduced U.S. channel inventory to address overstocking from private label contract wins and price increase anticipations. Underlying U.S. consumption remains healthy at a mid-single-digit growth rate. Investments are being made in expanded sales coverage, AI-driven analytics, and marketing to improve commercial execution.
• Product Performance: The MyDay franchise continues double-digit growth across EMEA, Americas, and specific sub-lines (Toric, Multifocal, Energist). BioAffinity performance was flat due to U.S. inventory moves offsetting EMEA strength. MySite delivered 20% organic growth, led by EMEA and Americas.
• Cooper Surgical Fundamentals: Long-term fertility market fundamentals remain strong, supported by delayed family formation, expanding access, and favorable government policies in regions like Denmark, Japan, and California. Genomics products and Witness platform adoption are driving market share gains.
• Capital Allocation & Cash Flow: Record quarterly free cash flow of $273 million was generated, bringing YTD FCF to $528 million (up 86%). The company repurchased $339 million in shares and increased the share repurchase authorization by $1 billion, bringing remaining capacity to approximately $1.5 billion.
• Innovation Infrastructure: The Global Vision Center in the UK is opening, integrating R&D, manufacturing, and commercial teams to accelerate speed-to-market using a standardized platform.

Cooper Vision reported revenue of $717 million, essentially flat year-over-year. The Americas segment was negatively impacted by proactive U.S. channel inventory reductions, while EMEA and AsiaPAC performed in line with expectations. Cooper Surgical generated revenue of $349 million, up 3% organically. Within this, the Fertility segment grew 5% to $141 million, driven by broad-based strength and genomics adoption, while Offices and Surgical revenue was $208 million, up 2%, with Medical Devices growing 4%. Consolidated revenue for the quarter was $1.066 billion, increasing approximately 1% on both a reported and organic basis.

• Q4 Consolidated Revenue: Expected between $1.057 billion and $1.08 billion, representing organic growth of 0% to 2%.
• Q4 Cooper Vision Revenue: Expected between $692 million and $706 million, down 2% to flat organically, reflecting continued U.S. channel inventory reduction impacts.
• Q4 Cooper Surgical Revenue: Expected between $364 million and $374 million, representing organic growth of 4% to 6%.
• Q4 Non-GAAP EPS: Expected between $1.05 and $1.09, based on an effective tax rate of roughly 16%.
• Q4 Free Cash Flow: Expected around $170 million, excluding approximately $272 million in litigation-related payments.
• Fiscal 2027 Tax Outlook: The GILTI increase in the U.S. is expected to raise the non-GAAP effective tax rate from roughly 15.5% in FY26 to roughly 17.5% in FY27.

• U.S. Channel Inventory: Proactive destocking in the U.S. has weighed on Q3 results and will continue to impact Q4 revenue, though underlying demand remains healthy.
• Competitive Landscape: Entry of new competitors in the non-hormonal IUD market and potential future launches pose risks to Cooper Surgical’s Paragard dominance.
• China Market Disruption: Significant headwinds in China due to pricing pressure on Ortho K, knockoffs, and disjointed marketplace dynamics have hindered MySite traction.
• Commercial Execution Gap: Despite winning contracts and having robust portfolios, execution at the point of sale has lagged due to insufficient sales force coverage compared to competitors.
• Margin Pressure: Q4 gross and operating margins are expected to be pressured by lower tariff refunds, FX headwinds, and increased commercial investments in sales and marketing.

Q: John Block asked if the revision in H2 CDI growth from +4% to flattish was entirely due to inventory, confirming underlying consumption remained steady.

A: Al White confirmed the entire guidance reduction was tied to D-stock (channel inventory), not fundamentals. He stated U.S. consumption has been stable in the mid-single digits and expects this to continue into Q4, meaning the portfolio rationalization of legacy hydrogels will be completed by Q4, positioning CVI for normal growth in 2027.

Q: Jeff Johnson questioned the drivers of destocking and whether issues would bleed into 2027, also asking about APAC stability.

A: Al White explained destocking was driven by pre-buying for price hikes, IT upgrades, and consolidation from new private label contracts. He affirmed the issue is ring-fenced to the U.S. and will be resolved in Q4. Regarding APAC, he noted the market is stabilizing as legacy product rationalization concludes, expecting a return to normalcy in early 2027.

Q: Leigh (for Larry Bigelson) asked to quantify the Q3 inventory impact and predict Q4 P&L margin pressures.

A: Al White revealed that without inventory actions, Americas would have grown ~5% in Q3, implying a similar magnitude of reduction in Q4. Brian Andrews noted Q4 operating margins will likely be in the mid-20s, down sequentially, due to lower tariff benefits, FX headwinds, and initial costs from new Cooper Surgical investments.

Q: Steve Lichman asked why management kept Cooper Surgical together despite lack of obvious synergies.

A: Al White emphasized the combined P&L strength, citing shared service efficiencies and record cash flow generation which supports aggressive stock buybacks. He clarified that while Synergies are limited, the financial engine of the combined entity allows for capital returns. He also confirmed that future M&A focus will shift heavily toward Cooper Vision organic growth rather than surgical acquisitions.

Q: David Saxon asked about specific regional needs for sales expansion and pricing power.

A: Al White identified the U.S. as the primary need, aiming to add coverage for 5,000 additional doors to convert won contracts into revenue. He stated pricing remains strong, with higher-priced products outperforming, and noted there is still room to take price given inflationary pressures and current market dynamics.