Carl Zeiss Meditec Q2 Earnings Call Highlights

Key Points

• First-half results were weak, with order entry down 5.2% and revenue down 5.7% year over year. Adjusted EBITDA margin also fell sharply to 6.1% from 10.7%, hurt by currency headwinds, product mix, and softer demand in China.
• Ophthalmology was the main pressure point, as revenue fell 6.7% and the EBITA margin dropped to 1.5%. The segment was hit by the loss of bifocal intraocular lens sales in China, scrapping of recalled IOLs, and a large write-off tied to the deprioritized Infinite Vision Optics project.
• Management launched a “Profit Up” restructuring plan targeting more than EUR 200 million in annual profit improvements by fiscal 2028/2029. The company expects up to 1,000 roles to be affected, while also warning of possible additional impairment charges and reaffirming a long-term margin goal above 15%.

Carl Zeiss Meditec ETR: AFX reported weaker first-half results for fiscal 2025/2026 and outlined a broad restructuring plan aimed at restoring profitability over the next three years, as management pointed to currency headwinds, soft equipment demand and pressure in China’s intraocular lens business.

Chief Executive Andreas Pecher said the company’s top line and earnings in the second quarter “still remained weak,” mainly due to foreign exchange effects and an unfavorable product mix, including lower intraocular lens sales in China. For the first six months, order entry totaled EUR 1.038 billion, down 5.2% year over year, or 2.3% on a currency-adjusted basis. Revenue fell 5.7% to EUR 991 million, or 2.8% on a constant-currency basis.

Adjusted EBITDA declined to EUR 60.5 million, with the adjusted EBITDA margin falling to 6.1% from 10.7% a year earlier. Reported EBITDA was EUR 39 million, representing a 3.9% margin. Pecher attributed the drop in profitability to negative currency effects, an unfavorable product mix and negative operating leverage, while noting that core operating expenses remained stable.

Ophthalmology Weighed Down by China IOL Issues

Chief Financial Officer Justus Felix Wehmer said the Ophthalmology strategic business unit posted revenue of EUR 754 million in the first half, down 6.7% year over year, or 4.2% on a currency-adjusted basis. Revenue declined across both equipment and consumables.

Wehmer said the segment was affected by exchange rates, the loss of bifocal intraocular lens sales in China following the revocation of a license for one product, and the scrapping of recalled bifocal IOLs. The scrapping was completed during the second quarter and had a EUR 6 million impact on both revenue and cost of goods sold.

The Ophthalmology EBITA margin dropped to 1.5%, down 7.6 percentage points from a year earlier. Wehmer said gross margin was pressured by currency, the bifocal IOL scrapping and mix effects, while operating expenses were affected by a EUR 13 million extraordinary write-off tied to Infinite Vision Optics. The company has deprioritized the IVO project, resulting in an impairment of capitalized research and development assets.

Management said a successor bifocal IOL has obtained registration approval in China. Wehmer said the company expects an opportunity to relist the product in China’s next volume-based procurement tender, which it currently expects to begin in June or July, though pricing and volume allocation will depend on the tender outcome.

Microsurgery Shows Currency-Adjusted Growth

Microsurgery revenue totaled EUR 237 million, down 2.1% year over year on a reported basis but up 1.8% on a currency-adjusted basis. In the second quarter alone, currency-adjusted revenue rose 4.2%, and Wehmer said the third quarter started with strong orders and top-line development.

The Microsurgery EBITA margin fell to 11.5%, a 4.8 percentage point decline from the prior year, mainly because of currency-driven gross margin pressure. Operating expenses in the segment remained roughly flat.

Regionally, EMEA was the strongest performer, with currency-adjusted revenue growth of 5.6% to EUR 346 million. Revenue in the Americas fell 11% to EUR 247 million, or 3.5% on a currency-adjusted basis, reflecting a weaker investment environment. Asia Pacific revenue declined 10% to EUR 398 million, or 8.6% on a currency-adjusted basis, with softness in China, South Korea, Japan and Southeast Asia partly offset by solid growth in India.

Profit Up Program Targets More Than EUR 200 Million in Annual Improvements

Pecher said Carl Zeiss Meditec has launched a “Profit Up” initiative to address margin erosion caused by market weakness and cost structures that are no longer aligned with the environment. The program covers all business segments, functions and sites.

The company is targeting more than EUR 200 million in annual profit improvements by fiscal 2028/2029. Planned actions include cost reductions in commercial headquarters and back-office functions, supply chain optimization, renegotiation of procurement contracts, qualification of additional suppliers, portfolio measures in lower-margin products and efficiency measures across general and administrative functions.

Pecher said some products that are not “mission-critical” to the company’s workflow strategy may be divested or phased out, while the company also plans to add products through its innovation pipeline and partnerships. He said up to 1,000 current positions globally may be affected, though new positions will be created, mainly in lower-cost countries, meaning the net job reduction will be smaller.

Wehmer said about EUR 40 million of the gross savings will be reinvested into additional infrastructure expenses by fiscal 2028/2029, leaving a net improvement of about EUR 160 million. He said the company expects substantial non-recurring investments related to the restructuring, potentially reaching up to EUR 150 million over three years.

Company Issues Full-Year Outlook, Flags Potential Impairments

For fiscal 2025/2026, Wehmer said the year is expected to be “a tale of two half years,” with weak first-half results followed by more stable second-half performance. The company expects revenue of EUR 2.15 billion to EUR 2.2 billion and an adjusted EBITDA margin of 8% to 10%.

Management said second-half improvement is expected to be supported by reduced currency headwinds, the seasonal summer peak in China’s refractive laser business and the typical back-end loading of the equipment business. Wehmer also pointed to the Microsurgery order book as a contributor.

The company also flagged potential additional charges. Wehmer said there are intellectual property-related topics that could result in at least EUR 10 million to EUR 20 million in potential impairment on capitalized R&D in the second half. He also said a potential goodwill impairment linked largely to past acquisitions, especially IanTech, could “somewhat exceed EUR 100 million,” though discussions with auditors are ongoing. He said any such charge would be treated as non-recurring and would not affect operational decisions in Ophthalmology or the Profit Up program.

Looking further out, Carl Zeiss Meditec said it aims for organic revenue growth of at least a mid-single-digit percentage over the medium term and an adjusted EBITDA margin above 15% by fiscal 2028/2029. Wehmer said the company still views a long-term EBITDA margin range of 16% to 20% as achievable for the business and the sector.

About Carl Zeiss Meditec ETR: AFX

Carl Zeiss Meditec AG operates as a medical technology company in Germany, rest of Europe, North America, and Asia. It operates in two segments, Ophthalmology and Microsurgery. The Ophthalmology segment offers products and solutions for the diagnosis and treatment of chronic eye diseases, such as ametropia (refraction), cataracts, glaucoma, and renital disorders. This segment also provides devices for general ophthalmological examination and care, including slit lamps, refractometers, tonometers, optical coherence tomography devices, and fundus cameras; and devices for functional diagnostics (perimeters), as well as digital products for storage, evaluation, and sharing of clinical data.

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