Executive Summary / Key Takeaways

• The Cooper Companies (COO) is executing a multiyear strategy to lead in daily contact lenses and global fertility, leveraging significant prior investments in manufacturing capacity, technology, and operational efficiency to drive profitability and market share gains.
• Recent performance, including Q2 fiscal 2025 results with consolidated organic revenue growth of 7% and non-GAAP EPS up 14%, demonstrates operational leverage and margin expansion despite some market softness and currency headwinds.
• Strategic initiatives like expanding MyDay capacity and parameter ranges, launching MyDay Energys internationally, and implementing a new MiSight pricing model focused on reducing upfront barriers are expected to accelerate growth in the latter half of fiscal 2025.
• While market growth expectations for contact lenses (now 4-6%) and fertility (low single digits) have been tempered based on recent industry data and channel inventory dynamics, Cooper's commercial execution is strong, and management expects to continue taking share.
• Fiscal 2025 guidance projects consolidated organic revenue growth of 5-6% and non-GAAP EPS of $4.05-$4.11, reflecting confidence in operational improvements, strategic product rollouts, and favorable FX trends offsetting softer market assumptions and tariff impacts.

Setting the Scene: A Dual-Market Leader Forging Growth

The Cooper Companies operates as a diversified global medical device company with a strategic focus bifurcated across two distinct yet fundamentally human-centric markets: vision care through its CooperVision (CVI) segment and women's healthcare and fertility through its CooperSurgical (CSI) segment. This dual-market approach, cultivated over a multiyear strategic journey, positions Cooper as a leader in areas addressing significant global health and lifestyle needs.

Historically, Cooper has strategically invested heavily in expanding its capabilities, particularly in manufacturing capacity for high-demand contact lens modalities like daily silicone hydrogels and building out a comprehensive portfolio within the fragmented fertility market through targeted acquisitions. This foundational work, involving significant capital expenditures and operational overhauls, was designed to transition the company into a phase of not only robust top-line growth but also enhanced profitability and free cash flow generation by leveraging these prior investments. The narrative today is one of capitalizing on this established infrastructure and product portfolio to drive market share gains and operational efficiency amidst evolving global economic and competitive dynamics.

Technological Foundation and Innovation Driving Competitive Edge

Cooper's competitive standing is significantly underpinned by its technological prowess, particularly within its CooperVision segment. The company has made substantial investments in developing advanced contact lens materials and designs, notably its silicone hydrogel (SiHy) technology, which offers tangible benefits like enhanced oxygen permeability and moisture retention compared to older hydrogel lenses.

Key product families like MyDay and Biofinity showcase this technological edge. MyDay, a premium daily SiHy lens, features designs like the advanced three ad design in its multifocal variant, contributing to a reported 98% fit success rate in two pairs or less. This ease of fitting is a critical operational benefit for eye care practitioners, optimizing chair time. The MyDay toric parameter expansion provides eye care practitioners with the widest SKU range by far for a daily toric lens, enabling them to fit an estimated 99.9% of all patients with the Biofinity family, a significant competitive advantage in addressing astigmatism. The MyDay Energys lens, with its DigitalBoost technology, is specifically designed for digital eye fatigue, addressing a growing modern lifestyle need. These technological differentiators translate directly into competitive moats by enhancing patient comfort, improving fitting success, and addressing specific vision needs, supporting premium pricing and customer loyalty.

In the myopia management space, Cooper's MiSight 1 day lens is the first and only FDA-approved product indicated to slow the progression of myopia in children. This regulatory achievement, backed by extensive clinical data (including a 10-year study), provides a unique market position. Specific quantifiable benefits like percentage reduction in myopia progression were not detailed. R&D efforts continue in this area, including planning for a MyDay MiSight lens combining MyDay comfort with MiSight technology, and development work on a MyDay MiSight Toric to address astigmatism in myopic children. These initiatives aim to expand the addressable market and reinforce Cooper's leadership in this high-growth segment.

Within CooperSurgical, technological advancements focus on fertility solutions and surgical devices. Investments in reproductive genetic testing are leveraging AI-based methodologies to detect genetic variations at the DNA level in embryos, aiming to improve IVF success rates. Acquisitions like ZyMot add patented sperm separation technology, and obp Surgical brings innovative lighted surgical retractors. Specific quantifiable performance improvements from these technologies were not detailed, but the strategic intent is clear: to offer advanced solutions that enhance procedure efficiency, improve outcomes, and differentiate CooperSurgical's portfolio in competitive markets.

Competitive Landscape: Navigating Established Giants and Niche Players

Cooper operates within competitive landscapes characterized by both large, diversified players and specialized niche competitors.

In the contact lens market, major rivals include Johnson & Johnson (JNJ), Bausch + Lomb (BLCO), and Alcon (ALC). JNJ is a dominant force with a large market share and broad portfolio. BLCO competes across contact lenses and surgical solutions, often emphasizing cost-effectiveness. ALC is strong in surgical and vision devices. Cooper's strategy differentiates itself by focusing on innovation within specific modalities (daily SiHy) and addressing complex vision needs (torics, multifocals, myopia management), rather than competing purely on scale or lowest price across all segments. While JNJ and ALC generally exhibit higher profitability metrics like ROIC and operating margins due to scale and portfolio mix, Cooper's focus on operational efficiency and leveraging its manufacturing investments is driving margin expansion, as seen in its improving gross and operating margins (68.0% and 18.4% respectively in Q2 2025). Cooper's technological edge in areas like MyDay's fitting success and Biofinity's extensive parameter range provides a competitive moat against broader portfolios. The decision not to enter the weekly/two-week market, primarily served by J&J and Alcon, highlights a strategic choice to focus resources on areas where Cooper believes it has a stronger competitive position.

In the women's health and fertility market, competition comes from various medical device companies and pharmaceutical players like AbbVie (ABBV). ABBV, with its pharmaceutical focus, generally boasts significantly higher margins (e.g., ~80% gross margin) and profitability metrics than CooperSurgical. CooperSurgical competes through a diversified portfolio spanning consumables, equipment, genetic testing, and surgical devices, often built through strategic acquisitions. Its competitive factors include technological advances, product quality, availability, price, and customer service. The recent approval of a non-hormonal IUD competitor could pose a challenge to Cooper's PARAGARD product, which saw a 10% decline in Q4 2024, although management notes PARAGARD is currently the only approved product and its new single-hand inserter aims to improve its competitive positioning. CooperSurgical's strength lies in its comprehensive offering across the fertility journey and targeted surgical areas, differentiating it from competitors with narrower focuses.

Overall, Cooper positions itself by identifying high-growth or underserved niches within these large markets, leveraging technological innovation and operational efficiency to gain share. While it may not match the scale or profitability of the largest diversified players, its focused strategy and execution are enabling it to grow faster than the overall market in key segments like daily SiHy lenses and fertility (historically).

Financial Performance: Operational Leverage Driving Margin Expansion

Cooper's recent financial performance reflects the impact of its strategic investments and operational focus. For the three months ended April 30, 2025 (Q2 fiscal 2025), consolidated net sales reached $1,002.3 million, an increase of 6% reported and 7% organically compared to the same period in 2024. Year-to-date (six months ended April 30, 2025), consolidated net sales were $1,967.0 million, up 5% reported.

CooperVision net sales in Q2 2025 were $669.6 million, up 5% reported and 7% organically, driven by growth across toric and multifocal (up 6%) and sphere/other (up 5%) categories. Daily silicone hydrogel lenses (MyDay, clariti) were a key driver, growing 10% organically in Q2 2025. Myopia management revenue reached $25 million in Q2 2025, up 35% organically. CooperSurgical net sales in Q2 2025 were $332.7 million, up 8% reported and 7% organically. Office and surgical sales grew 13%, while fertility sales grew 3%.

A notable trend is the improvement in profitability metrics. Consolidated gross profit margin increased to 68.0% in Q2 2025 from 67.3% in Q2 2024. This was primarily attributed to efficiency gains and a more favorable product and regional mix. Operating expenses, while increasing in absolute terms, declined as a percentage of revenue (40.0% in Q2 2025 vs. 40.3% in Q2 2024), demonstrating operational leverage. This leverage, combined with gross margin expansion, drove consolidated operating income up 14% to $184.8 million in Q2 2025, resulting in an operating margin of 18.4% (up from 17.2% in Q2 2024).

Net income for Q2 2025 was $87.7 million, resulting in diluted EPS of $0.44. This compares to net income of $88.9 million and diluted EPS of $0.44 in Q2 2024. The effective tax rate increased to 39.3% in Q2 2025 from 31.6% in Q2 2024, primarily due to changes in valuation allowance and a decrease in excess tax benefits from share-based compensation, partially offsetting the strong operating performance.

Cash flow from operations in the first six months of fiscal 2025 increased to $286.8 million from $233.7 million in the prior year period, driven by higher net income and favorable changes in operating capital. Cash used in investing activities decreased significantly to $176.0 million from $398.9 million, largely due to lower acquisition payments compared to the prior year which included the initial Cook Medical payment. Cash used in financing activities was $105.2 million, primarily for debt repayments and share repurchases. The company ended Q2 2025 with $116.2 million in cash and cash equivalents and total debt of $2,585.4 million. Working capital stood at $1,113.2 million, up from $928.7 million at October 31, 2024, mainly due to increases in inventories and accounts receivable. Management believes current liquidity and future cash flow generation are sufficient to meet anticipated needs for at least 12 months.

Outlook and Guidance: Adapting to Market Shifts with Strategic Execution

Cooper's guidance for fiscal year 2025 reflects a nuanced view of market conditions coupled with confidence in its operational execution and strategic initiatives. Consolidated revenue is projected to be between $4.11 billion and $4.15 billion, representing reported growth of 5.5% to 6.5% and organic growth of 5% to 6%. This guidance incorporates the solid Q2 performance, favorable currency rates, but is offset by lower organic growth assumptions for the underlying markets.

CooperVision's organic growth expectation has been adjusted to 6% to 7% for the year, reflecting a reduction in the contact lens market growth forecast to the 4% to 6% range (down from 5% to 7%), based on recent industry data showing 4% growth in calendar Q1. Despite this, management expects to continue taking market share, driven by the strength of MyDay (especially torics and multifocals), the accelerating momentum in MiSight (expected to see stronger growth in Q4), and increased availability from capacity expansion. Strategic product rollouts, such as MyDay Energys internationally and MyDay MiSight planning, are anticipated to contribute to growth, particularly in the latter half of the year.

CooperSurgical's organic growth guidance is now 3.5% to 4.5%, primarily due to a reduction in the fertility market growth expectation to low single digits (down from mid to upper single digits). This softness is attributed to declining cycles in Asia Pac and tighter cash management by clinics globally, impacting capital purchases. However, the strength seen in the office and surgical segment, particularly PARAGARD (expected low to mid single digit growth for the year despite a projected Q3 decline), partially offsets the fertility slowdown. Management remains bullish on the long-term fundamentals of the fertility market.

Non-GAAP EPS guidance for fiscal 2025 has been raised to $4.05 to $4.11, representing growth of 10% to 11.5%. This increase is driven by the Q2 beat, the positive impact of updated currency rates (now a roughly 0.5% revenue headwind and 1% earnings headwind, an improvement from prior expectations), and ongoing operational efficiencies. These tailwinds are expected to more than offset the impact of tariffs ($4 million expected negative impact to cost of goods in FY25) and the slightly lower organic growth assumptions. Management anticipates stronger organic revenue growth in Q4 compared to Q3, influenced by year-over-year comps, the timing of CVI product rollouts, and PARAGARD gating. Free cash flow is expected to be in the range of $350 million to $400 million, with debt reduction remaining the priority, alongside opportunistic share repurchases.

Risks: Macro Headwinds and Operational Hurdles

Despite the positive outlook, Cooper faces several pertinent risks. Macroeconomic uncertainty, including inflation, interest rate fluctuations, and potential recessionary pressures, could impact consumer spending on contact lenses and clinic investment in fertility equipment. Foreign currency exchange rate fluctuations remain a significant exposure, although the recent shift has been favorable for the current guidance. International conflicts and escalating trade barriers, such as tariffs (with a potential pre-mitigation impact of 3% to FY26 earnings if current conditions hold), pose ongoing risks to supply chains and profitability.

Operational risks include potential disruptions in manufacturing (despite capacity expansion efforts), supply chain volatility for raw materials (especially for silicone hydrogel lenses), and the successful integration of recent acquisitions. The previously identified material weakness in IT general controls within the CooperSurgical segment highlights the importance of ongoing remediation efforts to ensure effective internal controls. Competitive pressures, including new product introductions and pricing dynamics from rivals, could impact market share gains. Delays in regulatory approvals for new products or changes in healthcare regulations could also affect future growth. While management is implementing mitigation strategies, these risks could impact the company's ability to achieve its guidance and long-term objectives.

Conclusion

The Cooper Companies is demonstrating solid operational execution and strategic focus, successfully leveraging years of investment to drive profitability and take market share in its core vision care and women's health/fertility markets. Despite a recent tempering of market growth expectations for contact lenses and fertility, the company's differentiated product portfolio, particularly in daily silicone hydrogels, myopia management, and specialized fertility solutions, positions it to outperform the broader market. The strategic emphasis on expanding capacity, launching innovative products, and driving operational efficiencies is yielding tangible results in the form of improving margins and strong operating income growth. While macroeconomic headwinds, competitive pressures, and operational challenges persist, management's refined guidance for fiscal 2025 reflects confidence in navigating these factors through disciplined execution and capitalizing on strategic opportunities. For investors, the story is one of a company transitioning from a heavy investment phase to one focused on profitable growth and increasing free cash flow, underpinned by technological advantages and a commitment to addressing significant global health needs.