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EC

Embecta Corp. (EMBC)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered resilient profitability despite softer top-line: revenues $261.9M (-5.6% reported, -4.8% adjusted constant currency), GAAP EPS $0.00, adjusted EPS $0.65; adjusted operating margin rose to 30.7% and adjusted EBITDA margin to 37.2% .
  • Guidance updated: reported revenue cut to $1.075–$1.092B driven solely by stronger USD, while adjusted operating margin raised to 29.5–30.5% and adjusted EBITDA margin to 36–37%; adjusted EPS reaffirmed at $2.70–$2.90 .
  • Management highlighted cost discipline and deleveraging: $32.4M Term Loan B paid down in Q1; on track to reduce debt by $110M in FY25; cash ~$217M; net leverage ~3.7x vs covenant <4.75x .
  • Strategic pivot continues: insulin patch pump program discontinued (Nov. 2024); restructuring completion expected by 1H FY25 with $60–$65M annualized savings; brand transition to Embecta packaging starts 2H FY25 (U.S./Canada first); GLP‑1 pen needle initiatives progressing (small packs in Germany; multiple co‑pack discussions) .
  • Near-term catalysts: Investor & Analyst Day in late May 2025 (multi‑year outlook, portfolio expansion, GLP‑1 update) and Q2 implied revenue range $250–$255M, normalizing Q1 timing benefits .

What Went Well and What Went Wrong

What Went Well

  • Adjusted profitability strengthened: adjusted operating margin expanded to 30.7% (vs 27.9% YoY), adjusted EBITDA margin to 37.2% (vs 32.6% YoY) on lower SG&A/R&D from pump discontinuation and cost containment .
  • Cost discipline and deleveraging: $32.4M principal repaid on Term Loan B; management reiterated plan to cut debt by ~$110M in FY25, targeting ~3.0x net leverage by year‑end .
  • Strategic GLP‑1 positioning: small‑pack pen needles launched in Germany; advancing co‑pack agreements with 10+ potential generic GLP‑1 entrants to capture pen‑based administration growth .
  • Management quote: “We raised our adjusted operating and EBITDA margin guidance ranges while maintaining our previously provided adjusted EPS… despite an incremental $0.10 FX headwind” .

What Went Wrong

  • Top-line softness: revenue declined 5.6% reported (4.8% adjusted constant currency), with pen needles down 8.5% YoY; U.S. -4.6%, International -5.1% (adj. CC), driven by ERP‑related inventory timing and Q4’24 U.S. port-strike pull‑forward .
  • Gross margin compression: GAAP gross margin fell to 60.0% (vs 67.0% prior year) on lower volumes and profit/inventory normalization; adjusted gross margin decreased to 62.7% (vs 67.2% prior year) .
  • FX headwinds worsened: FY25 FX headwind assumption increased to ~2.2% (from ~0.6%), reducing reported revenue guidance despite unchanged constant-currency outlook .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$272.5 $286.1 $261.9
GAAP Diluted EPS ($)$0.25 $0.25 $0.00
Adjusted EPS ($)$0.74 $0.45 $0.65
Gross Margin % (GAAP)69.8% 60.7% 60.0%
Gross Margin % (Adjusted)69.8% 61.4% 62.7%
Operating Margin % (GAAP)20.5% 9.2% 11.0%
Operating Margin % (Adjusted)30.6% 21.1% 30.7%
Adjusted EBITDA Margin %36.4% 25.2% 37.2%

Segment breakdown (Q1 2025 vs prior year):

RegionQ1 2024 Reported Rev ($M)Q1 2025 Reported Rev ($M)Reported YoY %Adjusted Constant Currency YoY %
United States$148.6 $141.7 (4.6)% (4.6)%
International$128.7 $120.2 (6.6)% (5.1)%
Total$277.3 $261.9 (5.6)% (4.8)%

Product family breakdown (Q1 2025 vs prior year):

ProductQ1 2024 Reported Rev ($M)Q1 2025 Reported Rev ($M)Reported YoY %Adjusted Constant Currency YoY %
Pen Needles$209.8 $191.1 (8.9)% (8.5)%
Syringes$30.8 $28.4 (7.8)% (4.2)%
Safety$30.8 $34.2 11.0% 11.3%
Other$4.0 $3.4 (15.0)% (12.5)%
Contract Manufacturing$1.9 $4.8 152.6% 152.6%
Total$277.3 $261.9 (5.6)% (4.8)%

KPIs and balance sheet (quarter-end):

KPIQ4 2024Q1 2025
Cash & equivalents + restricted cash ($M)$274.2 $216.7
Debt principal outstanding ($B)$1.601 $1.569
Net leverage (LTM, per credit agreement)~3.8x ~3.7x
Dividend per share ($)$0.15 $0.15

Guidance Changes

MetricPeriodPrevious Guidance (Nov 26, 2024)Current Guidance (Feb 6, 2025)Change
Reported Revenues ($B)FY 2025$1.093–$1.110 $1.075–$1.092 Lowered
Reported Revenue Growth (%)FY 2025(2.7)%–(1.2)% (4.3)%–(2.8)% Lowered
FX Impact (%)FY 2025(0.6)% (2.2)% Increased headwind
Italian Payback Impact (%)FY 2025+0.4% +0.4% Maintained
Adjusted Constant Currency Revenue Growth (%)FY 2025(2.5)%–(1.0)% (2.5)%–(1.0)% Maintained
Adjusted Gross Margin (%)FY 202563.25%–64.25% 63.25%–64.25% Maintained
Adjusted Operating Margin (%)FY 202529.00%–30.00% 29.50%–30.50% Raised
Adjusted EPS ($)FY 2025$2.70–$2.90 $2.70–$2.90 Maintained
Adjusted EBITDA Margin (%)FY 202535.50%–36.50% 36.00%–37.00% Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
ERP/separation impacts & inventory timingERP implementations across 93% revenue; profit/inventory boosted Q3 margins; expected gross margin step-down in Q4; distributors rebalancing post-ERP Q1 revenue slightly ahead due to timing; normalization expected in Q2 Normalizing (less lumpiness expected in 2H)
Tariffs/macro & FXDiscussed FX and price dynamics; Italian payback recorded in Q4 Detailed tariff exposure by lane; FX headwind raised to ~2.2% FX headwind worsening; tariff exposure limited
GLP‑1 pen needle opportunityLaunched small packs in Germany; plan to expand; GLP‑1 shift from auto-injector to pen benefits pen needles Advancing co‑pack with 10+ generic entrants; progress in Germany; more color at May Analyst Day Building momentum
Product performance (Pen needles, Safety)Q3: pen needles down (inventory timing), safety up; Q4: pen needles +2.8% adj CC, safety +5.8% adj CC Q1: pen needles -8.5% adj CC; safety +11.3% (competitor exit) Mixed: Pen needles pressured, Safety strong
Regulatory/legal (Italian payback)Q4: explain Italian payback rulings and accruals FY25 guidance continues +0.4% Italian payback tailwind on reported vs prior year base Stable, known effect
R&D execution / Insulin pump programQ4: discontinuation decision, restructuring plan, $60–$65M annualized savings Execution on restructuring on track to complete by 1H FY25 Progressing per plan
Brand transitionQ4: phased start in FY25; maintain product names/colors U.S./Canada transition in 2H FY25; global completion in coming years Near-term execution

Management Commentary

  • CEO framing: “We raised our adjusted operating and EBITDA margin guidance ranges while maintaining our previously provided adjusted earnings per share… Looking ahead, we are excited to share our long-term strategy… at our Investor and Analyst Day in late May 2025.” .
  • CFO on Q1 outperformance and cadence: “During Q1, we exceeded our internal expectations for adjusted EPS by approximately $0.20… revenue came in better than we initially anticipated… we expect the overperformance in Q1 revenue to reverse itself during Q2.” .
  • CFO on leverage and debt reduction: “Last 12 months net leverage… ~3.7x… we remain on track to reduce our debt by $110 million during fiscal year 2025.” .
  • CEO on GLP‑1: “We are advancing our efforts to co‑package our pen needles with potential generic GLP‑1 drugs and in retail packaging.” .

Q&A Highlights

  • Category performance drivers quantified: ~$10M Q4’24 U.S. distributor pull-forward (port strike), ~$6M prior-year ERP timing, ~$3M China distributor rebalancing; Q2 pen-needle performance expected “very similar” to Q1 .
  • GLP‑1 strategy: tracking small packs where out-of-pocket scripts allow; focus on co‑pack with generics seen as larger long-term opportunity; 10+ discussions ongoing; more detail at May Analyst Day .
  • Capital allocation and leverage: priority remains deleveraging; targeting ~3.0x by FY25 year‑end and potentially into “2xs” in 2026; M&A to be opportunistic and sized to add ~$10–$15M revenue annually, not transformative .
  • Guidance mechanics: adjusted EPS reaffirmed despite ~$0.10 FX headwind, offset by ~$0.10 SG&A savings; Q2 implied revenue $250–$255M; full-year 48%/52% first-half/second-half revenue cadence .
  • Tariff exposure limited: <1% of global revenue manufactured in China and sold into U.S., currently exempt; manufacturing footprint in Ireland/U.S./China with lane-specific exemptions; Canada/Mexico exposure modest; monitoring policy changes .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2025 EPS and Revenue was unavailable at time of analysis due to an SPGI daily request limit error; therefore, we cannot compare GAAP or adjusted EPS and revenue to consensus for this quarter [SPGI error].
  • Company indicated adjusted EPS exceeded internal expectations by ~$0.20 in Q1, with drivers evenly split between revenue timing and SG&A, but this is not a substitute for external consensus comparison .

Key Takeaways for Investors

  • Profitability resilience: Adjusted operating margin 30.7% and adjusted EBITDA margin 37.2% despite revenue pressure—cost containment and pump discontinuation benefits are flowing through .
  • FX-driven guidance reset: Reported revenue guide lowered solely due to stronger USD; constant-currency revenue unchanged—focus on margin execution and pricing/mix to protect earnings .
  • Deleveraging as a core thesis: $110M debt reduction in FY25 and cash discipline point to lower net leverage, increasing strategic flexibility for tuck‑ins or portfolio expansion in 2026+ .
  • GLP‑1 optionality: Near-term Germany small‑pack volumes and medium‑term co‑pack agreements with generics provide potential incremental demand for pen needles; further detail expected at May Analyst Day .
  • Q2 setup: Revenue implied at $250–$255M as Q1 timing benefits reverse—watch cadence, margins, and any tariff/FX updates; management intends less quarterly cadence commentary going forward .
  • Brand transition execution risk but manageable: Phased rollout in 2H FY25 (U.S./Canada first) with unchanged product names/colors to limit confusion; monitor working capital and temporary disruptions .
  • Safety product strength sustainable: double‑digit growth from competitor exit; monitor share gains persistence and contribution to margin mix .