Carl Zeiss Shares Decline Amid Weak Financial Performance and China Market Challenges

Carl Zeiss shares have experienced a decline due to a combination of weak financial performance and challenges in its China operations.

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Financial Performance

Revenue Decline: Carl Zeiss Meditec reported a slight decline in revenue for the first nine months of the fiscal year 2023/24, with total revenue of around €1,486.5 million, down from €1,509.6 million in the prior year. This decline is attributed to a less favorable product mix, particularly due to the reduction of inventories in the Chinese sales channel by March 2024 and delayed implementation of volume-based procurement of intraocular lenses (IOLs) in China.
EBIT and Margin: The operating result (EBIT) for the first nine months of 2023/24 was €162.7 million, significantly lower than the €244.9 million reported in the prior year. The EBIT margin also declined to 10.9% from 16.2%. This weak performance is primarily due to the reduction of inventories in China and the delayed procurement of IOLs.
Earnings Per Share (EPS): Earnings per share (EPS) declined significantly to €1.32 from €2.29 in the prior year, reflecting the weaker EBIT and lower financial result.

China Operations

China Market Challenges: The China market has been a significant contributor to Carl Zeiss' overall performance. However, the company has faced challenges due to normalization of consumables inventories in China, which was completed in March 2024. This normalization led to a subdued start to the peak season for refractive laser surgery compared to the prior year.
Impact on Revenue: The weak performance in China has had a notable impact on Carl Zeiss' overall revenue. The company reported a slight decline in revenue in the APAC region, which includes China, with a decrease of -4.1% (adjusted for currency effects: +3.0%) to €697.5 million from €727.0 million in the prior year.
Strategic Business Units: The Ophthalmology strategic business unit (SBU) experienced a slight decline in revenue due to weaker sales of refractive consumables, which were partially related to the normalization of consumables inventories in China. The Microsurgery SBU also saw a decline in revenue, mainly due to a weak neurosurgery business, which was affected by investment reluctance in various customer groups, particularly in North America.

Market Reaction

The market has reacted negatively to these financial challenges, with Carl Zeiss shares experiencing a decline. The share price has fallen 30% over the past period, reflecting the market's concerns about the company's performance and outlook.

Future Outlook

Carl Zeiss is implementing cost-cutting measures and medium-term transformation initiatives to optimize processes and increase productivity. These initiatives aim to stabilize the business and ensure sustainable productivity increases. The company expects the EBIT margin to recover and move back towards around 20% in the medium term, supported by these transformation initiatives.

In summary, the decline in Carl Zeiss shares is primarily due to weak financial performance driven by challenges in the China market, including inventory normalization and delayed procurement of IOLs, which have impacted overall revenue and profitability. The company is taking steps to address these issues and improve its financial outlook.

Carl Zeiss Shares Decline Amid Weak Financial Performance and China Market Challenges

Carl Zeiss shares have experienced a decline due to a combination of weak financial performance and challenges in its China operations.

Preview

Financial Performance

Revenue Decline: Carl Zeiss Meditec reported a slight decline in revenue for the first nine months of the fiscal year 2023/24, with total revenue of around €1,486.5 million, down from €1,509.6 million in the prior year. This decline is attributed to a less favorable product mix, particularly due to the reduction of inventories in the Chinese sales channel by March 2024 and delayed implementation of volume-based procurement of intraocular lenses (IOLs) in China.
EBIT and Margin: The operating result (EBIT) for the first nine months of 2023/24 was €162.7 million, significantly lower than the €244.9 million reported in the prior year. The EBIT margin also declined to 10.9% from 16.2%. This weak performance is primarily due to the reduction of inventories in China and the delayed procurement of IOLs.
Earnings Per Share (EPS): Earnings per share (EPS) declined significantly to €1.32 from €2.29 in the prior year, reflecting the weaker EBIT and lower financial result.

China Operations

China Market Challenges: The China market has been a significant contributor to Carl Zeiss' overall performance. However, the company has faced challenges due to normalization of consumables inventories in China, which was completed in March 2024. This normalization led to a subdued start to the peak season for refractive laser surgery compared to the prior year.
Impact on Revenue: The weak performance in China has had a notable impact on Carl Zeiss' overall revenue. The company reported a slight decline in revenue in the APAC region, which includes China, with a decrease of -4.1% (adjusted for currency effects: +3.0%) to €697.5 million from €727.0 million in the prior year.
Strategic Business Units: The Ophthalmology strategic business unit (SBU) experienced a slight decline in revenue due to weaker sales of refractive consumables, which were partially related to the normalization of consumables inventories in China. The Microsurgery SBU also saw a decline in revenue, mainly due to a weak neurosurgery business, which was affected by investment reluctance in various customer groups, particularly in North America.