Ansell’s (ASX: ANN) fiscal 2023 results delivered a 15 per cent fall in revenue to $US1.66 billion while earnings-per-share decreased 6% to USD 1.17 – close to Morningstar’s expectation with sales in line but slightly flaccid profit margins. While its group earnings-before-income and tax margin improved 60 basis points on an organic constant-currency basis, gross margin expansion was hampered by higher energy and employee costs, Morningstar analyst Shane Ponraj noted in his client note.

The results did not appeal to the market with its share price ending $23.7, falling 2.4 per cent compared with a 0.9 per cent fall in the broader market. While demand was robust for Ansell’s products during the pandemic, the business now faces a different outlook.

The fiscal year did present “a unique range of challenges” said Ansell CEO Neil Salmon as the medical gloves manufacturer continues to “experience the lingering effects of pandemic-related changes to customer behaviour on our business” as well as “evolving global economic conditions”.

Despite the challenged outlook, Morningstar’s Ponraj sees upside from the business from future productivity gains.

In fact, Salmon flagged “we have continued to invest in our operations to position the company for long-term growth”.

According to Ponraj, the underlying business remains strong with productivity gains to come.
While he trimmed Ansell’s underlying EPS (earnings-per-share) forecast due to softer revenue growth because of lowing manufacturing business, Ponraj’s long-term “assumptions are intact”.

Ponraj also highlights that Ansell’s productivity program is set to deliver at least $US45 million in annualised cost savings by fiscal 2026. .

One-off restructuring costs of $US50 million to R$US55 million will impact fiscal 2024 but those costs will cut employee expenses by increasing automation and reducing duplication of leadership responsibilities.

In addition, Ansell plans to invest $US30 million to $U35 million over the next few years in digitisation, with further gains in productivity likely.

Solid earnings for Cochlear and CSL


Ansell’s fiscal results came in the same week as Cochlear (ASX: COH) and CSL (ASX: CSL) reported their earnings. Both stocks also highlighted margin pressures but in contrast to Ansell, reported solid results. Shares rallied for both businesses with Cochlear reporting a 4 per cent profit increase in statutory profit of $301 million for the full year – Ponraj highlighted abnormal tailwinds including the surgical backlogs clearing post COVID- while CSL reported $US2.61 billion in full year profit – up 10 per cent.

Healthcare stocks are somewhat defensive which means these businesses can generally pass on cost inflation without having a big impact on demand. With rising inflation, it’s a sector that is appealing but buying opportunities - note the price rallies for both Cochlear and CSL- are limited. While the healthcare sector underperformed the Morningstar Australia Index in the June quarter of 2023, only a handful of names are attractive including Ansell. In fact, Ansell was highlighted as one of the top sector picks in healthcare in Morningstar’s recent Q3 2023 outlook – available in full to Investor subscribers

Ponraj believes Ansell’s recent margin pressures will eventually abate as supply chain constraints normalise and pricing for its gloves stable to around pre-pandemic levels by fiscal 2024. Despite the market swings, as a quality business, Ansell is well positioned in the future.