May 18, 2016 / 2:35 PM / 3 years ago

UPDATE 1-Sonova falls short of full-year targets, shares plunge

* Competition from Costco own-brand devices a concern

* Expects some negative customer reaction to AudioNova deal

* Shares down 7 pct (Adds new CEO quote, analyst comment, share price)

ZURICH, May 18 (Reuters) - Swiss hearing aid maker Sonova missed full-year targets and lowered its sales outlook on Wednesday, suggesting it could take some time to reap benefits from this month’s acquisition of AudioNova, sending its shares sharply lower.

Sonova has been hurt by slower than expected growth for its U.S. cochlear implant business and by customer Costco’s move to sell own-brand hearing aids at cheaper prices than Sonova’s devices on neighbouring shelves.

Though Sonova expects the 830 million euro ($953 million) takeover of Netherlands-based retailer AudioNova to pay off over time, Chief Executive Lukas Braunschweiler acknowledged that it could lose some European customers unhappy with its expanded role as both supplier and competitor.

“We expect, and you can see that from our guidance in the coming year, a certain negative reaction from isolated customers in Europe,” Braunschweiler said. “The coming year will be one of transformation.”

Shares in Sonova were down 7 percent at 1403 GMT, with the day shaping up to be the stock’s worst in 16 months.

The company reported sales in the year to March 31 rose 5.8 percent to 2.07 billion Swiss francs ($2.11 billion), compared with a target of 6-8 percent target.

Constant currency earnings before interest, tax and amortisation (EBITA) were up 1.4 percent at 430.6 million francs, against a target of between 3 percent and 7 percent.


Braunschweiler’s new guidance for 2016/17 — sales growth of 4-6 percent and EBITA expansion of 3-7 percent — was described as “weak” by Berenberg analysts, who listed customer disenchantment with Sonova’s retail acquisition strategy, recession-plagued Brazil and problems at Costco among the company’s main woes.

“Costco is a concern, as this had been a key growth driver and Sonova appears to be losing ground to the new own-brand,” Berenberg’s Tom Jones wrote in a note.

Braunschweiler said that prices for Costco’s Kirkland-branded hearing aids were recently cut by a further $200 to $1,800. Sonova’s Phonak Brio model at Costco can cost hundreds more.

Even so, Braunschweiler said that Sonova cannot abandon supplying hearing aids through Costco because margins from those transactions exceed those of Sonova’s other U.S. retail outlets.

“We have to be a part of this channel because it is growing,” Braunschweiler said. “But there’s the question of how we position our products, and there are ongoing discussions with Costco about how we’ll do this.”

Reporting by John Miller; Editing by David Goodman

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