Demant shares drop on soft revenue dynamics

Investing.com -- Shares of Demant A/S (CSE:DEMANT) fell 5.5% as the company reported a soft revenue dynamic, despite a 4% profit beat for the fourth quarter. The Danish hearing aid manufacturer posted Q4 sales of DKK 5,931 million, slightly below the consensus of DKK 5,939 million, with organic sales growth (OSG) of 2% just under the expected 2.3%.

The company’s gross margin in the second half was 40 basis points lower at 75.7% compared to the consensus of 76.1%, primarily due to foreign exchange headwinds and a negative product mix shift towards rechargeable devices.

The adjusted EBIT for the quarter was DKK 2,336 million, surpassing the consensus of DKK 2,310 million, resulting in a margin of 20.6%, slightly ahead of the expected 20.4%. This operational performance was mainly attributed to a 2% organic operating expense growth, which was in line with assumptions, the impact of foreign exchange, and lower operating leverage, especially in the Hearing Aids segment.

The fourth quarter also highlighted a 5% market growth in unit terms, with Europe growing by 3%, North America by 6%, and the rest of the world by 6%. However, the company noted a significant share loss in the Managed Care segment due to its brand strategy, which was only partially offset by the positive adoption of Oticon Intent in the independent channel.

For fiscal year 2024, Demant reached the low-end of its guidance with a 2.0% organic sales growth and DKK 4,404 million in adjusted EBIT, which was within the DKK 4.3-4.6 billion outlook range. This outcome was anticipated following the tone of the Q4 pre-close call.

Looking forward, the company provided a fiscal year 2025 outlook with an expected 3-7% organic sales growth (OSG) and adjusted EBIT between DKK 4,500-4,900 million, which is below the consensus of DKK 4,832 million. This translates into a margin of 18.9%-19.9%, compared to the consensus of 19.9%. The company anticipates an M&A contribution of approximately 2% and a 1% foreign exchange tailwind.

The hearing aid market is projected to grow 4-6% in value, with France expected to see a high single-digit percentage increase in unit terms. Demant expects a strong start to the year, although Q1 is forecasted to be below the full-year guide due to the Managed Care Organization (MCO) impact weighing on the first quarter. Notably, the guidance does not reflect any significant impact from potential US tariffs.

Jefferies, a financial services company, commented on the situation, stating, "With no new product launch, unexciting ’25 prospects & shares nice run YTD, stock likely down MSD+."

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