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EC

Embecta Corp. (EMBC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 delivered mixed topline but stronger profitability: revenue $259.0M (-9.8% YoY; -7.7% adj. constant currency) while adjusted EPS rose to $0.70; management raised FY2025 adjusted operating margin and adjusted EBITDA margin guidance, and maintained adjusted EPS despite tariffs and lower U.S. volumes tied to a large pharmacy chain’s store closures .
  • Versus consensus: EPS beat ($0.70 vs $0.59*) while revenue was slightly below ($259.0M vs $261.8M*); adjusted EBITDA outperformed Street ($97.1M vs $87.7M*) . Values retrieved from S&P Global.
  • Strategic catalysts: acceleration in deleveraging ($27.4M debt repaid in Q2; targeting ~$110M in FY2025), tangible GLP-1 progress (purchase orders received for co-packaging pen needles), and a phased brand transition underway in U.S./Canada .
  • Guidance changes: lowered FY2025 adjusted constant currency revenue growth range by 150 bps, but raised adjusted operating margin (to 29.75–30.75%) and adjusted EBITDA margin (to 36.25–37.25%); adjusted EPS held at $2.70–$2.90 .
  • Near-term stock drivers: margin resilience despite tariffs, deleveraging traction, and GLP-1 co-packaging momentum; watch U.S. retail channel inventory normalization and tariff path as potential headwinds/tailwinds .

What Went Well and What Went Wrong

What Went Well

  • Adjusted profitability improved: adjusted operating margin expanded to 31.4% (26.1% PY) and adjusted EBITDA margin to 37.5% (31.6% PY), driven by lower SG&A/R&D post patch pump discontinuation and cost controls .
  • EPS beat with disciplined cost management: adjusted EPS $0.70 vs consensus ~$0.59*, benefiting from expense management and reduced interest expense; CFO: “reduction in interest expense…offset by an increase in our adjusted tax rate” . Values retrieved from S&P Global.
  • GLP-1 strategic progress: “received several purchase orders from generic manufacturers to co-package our pen needles” — a tangible milestone to expand into fast-growing weekly injection therapies .

What Went Wrong

  • Topline contraction: revenue fell to $259.0M (-9.8% YoY; -7.7% adj. cc), with pen needle revenue down 12.1% adj. cc due to prior-year ERP-related inventory builds and timing around price increases .
  • Tariff headwinds: management incorporated incremental tariffs, estimating a ~25 bps gross margin headwind in FY2025 and ~$8–$9M gross annualized impact for FY2026 before mitigations .
  • U.S. retail normalization: lowered FY2025 constant currency revenue outlook on anticipated reductions in customer inventory tied to store closures at a large pharmacy chain; management views impact as transitory but it pressured FY guidance .

Financial Results

Consolidated Performance vs Prior Year, Prior Quarter, and Estimates

MetricQ2 2024 (oldest)Q1 2025Q2 2025 (newest)
Revenue ($M)$287.2 $261.9 $259.0
GAAP Diluted EPS ($)$0.50 $0.00 $0.40
Adjusted Diluted EPS ($)$0.67 $0.65 $0.70
Gross Margin (%)64.6% 60.0% 63.4%
Adjusted Gross Margin (%)64.7% 62.7% 63.7%
Operating Margin (%)13.6% 11.0% 24.3%
Adjusted Operating Margin (%)26.1% 30.7% 31.4%
Adjusted EBITDA ($M)$90.8 $97.3 $97.1
Adjusted EBITDA Margin (%)31.6% 37.2% 37.5%

Actuals vs Wall Street Consensus (S&P Global)

MetricQ2 2025 ConsensusQ2 2025 Actual
Revenue ($M)$261.8*$259.0
Primary EPS ($)$0.59*$0.70
EBITDA ($M)$87.7*$97.1
Values retrieved from S&P Global.

Segment/Product Family Breakdown (Q2 2025 vs Q2 2024)

Product Family ($M)Q2 2024Q2 2025Reported YoY %Adj. CC YoY %
Pen Needles$218.2 $188.3 (13.7%) (12.1%)
Syringes$30.0 $28.8 (4.0%) +1.7%
Safety$33.3 $34.2 +2.7% +4.2%
Other$3.1 $3.3 +6.5% +9.7%
Contract Manufacturing$2.6 $4.4 +69.2% +73.0%
Total$287.2 $259.0 (9.8%) (7.7%)

Geographic Breakdown (Q2 2025 vs Q2 2024)

Geography ($M)Q2 2024Q2 2025Reported YoY %Adj. CC YoY %
United States$147.6 $135.2 (8.4%) (8.4%)
International$139.6 $123.8 (11.3%) (7.0%)
Total$287.2 $259.0 (9.8%) (7.7%)

Key KPIs and Balance Sheet

KPIQ4 2024Q1 2025Q2 2025
Cash & Equivalents + Restricted ($M)$274.2 $216.7 $212.3
Long-Term Debt Principal ($B)$1.565 $1.535 $1.509
Debt Paid Down in Quarter ($M)$27.4 $32.4 $27.4
Dividend per Share ($)$0.15 $0.15 $0.15
Net Leverage (credit facility def.)——~3.7x (at Q2 end)

Guidance Changes

MetricPeriodPrevious Guidance (Feb 6, 2025)Current Guidance (May 9, 2025)Change
Reported Revenues ($M)FY2025$1,075–$1,092 $1,073–$1,090 Maintained (range slightly narrower down 2M)
Reported Revenue Growth (%)FY2025(4.3%)–(2.8%) (4.4%)–(2.9%) Maintained (minor tweak)
FX Impact (%)FY2025(2.2%) (0.8%) Improved (less headwind)
Italian Payback Impact (%)FY2025+0.4% +0.4% Maintained
Adjusted Constant Currency Revenue Growth (%)FY2025(2.5%)–(1.0%) (4.0%)–(2.5%) Lowered (by 150 bps both ends)
Adjusted Gross Margin (%)FY202563.25%–64.25% 62.75%–63.75% Lowered (50 bps)
Adjusted Operating Margin (%)FY202529.50%–30.50% 29.75%–30.75% Raised
Adjusted EPS ($)FY2025$2.70–$2.90 $2.70–$2.90 Maintained
Adjusted EBITDA Margin (%)FY202536.00%–37.00% 36.25%–37.25% Raised
Net Interest Expense ($M)FY2025~—~$107 (assumption) Assumption reiterated
Adjusted Tax Rate (%)FY2025~—~25% (assumption) Assumption reiterated
Diluted Shares (MM)FY2025~—~58.9 (assumption) Assumption reiterated
Capex ($M)FY2025~$20 ~$15 Lowered
Patch Pump Discontinuation Cash Usage ($M)FY2025$25–$30 $20–$25 Lowered
Dividend per Share ($)FY2025$0.15 (declared) $0.15 (declared) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q4 2024; Q-1: Q1 2025)Current Period (Q2 2025)Trend
Tariffs/MacroNo explicit FY2024 tariff guidance; restructuring for efficiency Incorporated incremental tariffs; ~25 bps FY gross margin headwind; 2026 gross impact ~$8–$9M before offsets New headwind; mitigation plans underway
Supply Chain/ERP/Stand-up98% of revenue transitioned to own ERP; India deferred Stand-up largely complete; only India remains; separate restructuring to streamline Near completion; cost savings realized
Brand TransitionPlanning; U.S./Canada transition targeted for H2 FY2025 Underway in U.S./Canada; phased approach preserving product recognition Executing per plan
Product Performance (Pen Needles/Syringes/Safety)Q4 FY2024: pen needles +2.8% adj. cc; syringes +4.8% adj. cc; safety +5.8% adj. cc Q2 FY2025: pen needles -12.1% adj. cc; syringes +1.7%; safety +4.2% Mixed; pen needle decline vs hard comp; syringes/safety resilient
GLP-1 InitiativesSmall-pack GLP-1 needles launched in Germany; expanding Purchase orders from generic GLP-1 manufacturers for co-packaging; expanded retail packaging progress Momentum strengthening
Financial Flexibility/DeleveragingQ4: $27.4M debt repaid Q2: $27.4M repaid; YTD ~$60M; targeting ~$110M FY2025; net leverage ~3.7x On track; leverage improving
Regulatory/Legal (Italian payback)FY2024 included accrual; impacted reported rev FY2025 reported revenue not impacted by prior accrual; ~+0.4% tailwind vs FY2024 Lapsing headwind aiding comps

Management Commentary

  • CEO: “We are raising key profitability metrics while maintaining our prior adjusted earnings per share guidance despite a lowered fiscal year 2025 adjusted constant current revenue guidance range and the impact of incremental tariffs” .
  • CEO on GLP-1: “We have received several purchase orders from generic manufacturers to co-package our pen needles…a very tangible and specific milestone” .
  • CFO: “We are raising our guidance ranges for adjusted operating and adjusted EBITDA margins…due to disciplined expense management and the initiation of the…restructuring plan” .

Q&A Highlights

  • Demand dynamics: U.S./International pen needle declines driven by timing around price increases and prior-year ERP inventory builds; syringes strength in Latin America/Asia; safety aided by competitor exit .
  • Retail pharmacy closures: lowered U.S. volume outlook due to distributor ordering changes tied to store closures at a large chain; management views impact as transitory with chronic-use demand shifting within retail networks .
  • Tariffs detail: FY2025 gross margin headwind 25 bps ($3M in H2), annualized ~$8–$9M in FY2026 before offsets; mitigation via cost actions and pricing where feasible .
  • GLP-1 POs: purchase orders enable testing and regulatory preparation by generics; viewed as a key strategic milestone to expand into weekly injection markets .
  • Efficiency program: SG&A-focused restructuring saves $7–$8M in H2 FY2025; annualized ~$15M in FY2026 .

Estimates Context

  • Q2 FY2025: EPS beat ($0.70 vs $0.59*), revenue slight miss ($259.0M vs $261.8M*), adjusted EBITDA beat ($97.1M vs $87.7M*) . Values retrieved from S&P Global.
  • FY2025 Street trajectory: management indicated second-half strength vs first-half and low-single-digit constant currency growth likely in Q3, aligning with expectations of ~7–8% q/q growth cited on the call .
  • Implications: Street may modestly lower revenue forecasts (constant currency) while lifting margin/EBITDA estimates; adjusted EPS for FY2025 likely stable given guidance maintained .

Key Takeaways for Investors

  • Margin resilience as the core narrative: despite tariff headwinds and retail normalization, adjusted operating and EBITDA margin guidance increased; watch continued cost execution and restructuring benefits .
  • GLP-1 optionality is real: purchase orders from generics and retail packaging expansion create incremental demand pathways; monitor commercialization milestones and geographic rollouts .
  • Deleveraging on track: $27.4M Q2 paydown, ~$60M YTD; target ~$110M FY2025 and net leverage approaching ~3x by year-end supports equity value via reduced interest burden .
  • Near-term topline headwinds manageable: pen needle declines reflect timing/ERP comps; syringes and safety categories show resilience; Q3 constant currency growth expected to return to low single digits .
  • Tariff risk bounded for FY2025: ~25 bps gross margin impact incorporated; FY2026 exposure ~$8–$9M gross before mitigations; policy path is a swing factor to monitor .
  • Dividend continuity: $0.15 quarterly dividend reaffirmed; signals confidence in cash generation amid deleveraging and restructuring .
  • Trading lens: favor setups around incremental GLP-1 disclosures (Investor Day), tariff headlines, and quarterly prints demonstrating margin durability; watch U.S. channel inventory normalization as a source of volatility .

Values retrieved from S&P Global.