Embecta Corp. (EMBC) Q1 2026 Earnings Call Transcript
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Overview
The earnings call presents a mixed picture: while there are positive aspects such as debt repayment and a strong international market, there are notable concerns. The U.S. business faces pricing and volume challenges, and the revenue guidance is at the lower end due to pricing headwinds. Furthermore, the decline in operating margin and unclear timelines for new projects add to uncertainties. The Q&A section reveals some optimism about future opportunities, but lacks detailed guidance. Overall, these factors balance out to a neutral sentiment.
Key Financial Performance
Revenue Embecta generated approximately $261 million in revenue for Q1 2026, reflecting a 0.3% decline year-over-year on an as-reported basis or a 2% decline on an adjusted constant currency basis. The decline was driven by performance within the international business.
U.S. Revenue Revenue totaled approximately $131 million, reflecting a year-over-year decline of 7.6% on an adjusted constant currency basis. The decline was driven by lower pricing and lower volumes due to channel dynamics, partially offset by order timing.
International Revenue Revenue totaled approximately $130 million, representing an increase of 8.4% on a reported basis and 4.6% on an adjusted constant currency basis. This was driven by strength across EMEA and Latin America, while China remained a headwind.
Pen Needle Revenue Adjusted constant currency pen needle revenue declined approximately 4.4% year-over-year, primarily due to factors impacting U.S. and China results, partially offset by growth in EMEA and Latin America.
Syringe Revenue Syringe revenue grew by approximately 5.3% year-over-year, driven by improved performance in Latin America, EMEA, and Asia, which offset ongoing declines in the U.S. due to shifts in diabetes treatment towards insulin pens.
Safety Product Revenue Safety product revenue grew approximately 7.3% year-over-year, driven by gains in the U.S. and EMEA.
Contract Manufacturing Revenue Contract manufacturing revenue declined approximately 16.7% year-over-year due to the continued in-sourcing of these products by Becton, Dickinson.
Gross Profit and Margin GAAP gross profit for Q1 2026 was $161.7 million with a margin of 61.9%, compared to $151.7 million and 60% in the prior year. Adjusted gross profit was $163.5 million with a margin of 62.6%, compared to $164.2 million and 62.7% in the prior year. The slight decline in adjusted gross margin was due to unfavorable pricing dynamics and mix, partially offset by manufacturing cost improvements.
Operating Income and Margin GAAP operating income for Q1 2026 was $83.3 million with a margin of 31.9%, compared to $28.7 million and 11% in the prior year. Adjusted operating income was $79.3 million with a margin of 30.4%, compared to $80.5 million and 30.7% in the prior year. The decline in adjusted operating income was due to lower gross profit and increased R&D expenses, partially offset by lower SG&A expenses.
Net Income and EPS GAAP net income for Q1 2026 was $44.1 million with earnings per diluted share of $0.74, compared to $0 in the prior year. Adjusted net income was $42.3 million with EPS of $0.71, compared to $38.3 million and $0.65 in the prior year. The increase in adjusted net income was due to reduced interest expense and a lower tax rate, partially offset by lower operating profit.
Free Cash Flow Free cash flow for Q1 2026 was approximately $17 million.
Debt Repayment Approximately $38 million of outstanding debt was repaid in Q1 2026, reducing the last 12 months net leverage level to approximately 2.8x.
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Operating Highlights
Brand Transition: More than 95% of U.S. and Canadian revenue has transitioned to the Embecta brand, with global transitions underway and expected to be substantially complete by the end of 2026.
Market-Appropriate Pen Needles and Syringes: Product designs finalized, production equipment installed, and manufacturing validation underway. Regulatory submissions and commercial launches are planned.
GLP-1 Strategy: Collaborating with over 30 pharmaceutical partners for co-packaging pen needles with generic GLP-1 therapies. Initial launches expected in Canada, Brazil, China, and India in 2026.
Medicare Part D Access: Contracted with an additional Medicare Part D payer for exclusive access and renewed agreements with top 3 payers, enhancing portfolio competitiveness.
International Revenue Growth: International revenue increased by 8.4% on a reported basis, driven by strength in EMEA and Latin America, despite headwinds in China.
Revenue Performance: Generated $261 million in revenue for Q1 2026, a 0.3% decline year-over-year. U.S. revenue declined by 7.6%, while international revenue grew by 8.4%.
Adjusted Operating Margin: Reaffirmed guidance of 29%-30%, with expectations to be closer to the lower end due to U.S. pricing headwinds.
Financial Flexibility: Focused on free cash flow generation and disciplined capital allocation, with $17 million free cash flow generated in Q1 2026 and $38 million debt repaid.
Portfolio Expansion: Expanding availability of Embecta-branded small pack configurations in Canada and Europe, targeting out-of-pocket customers and GLP-1 users.
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Risk or Challenges
Revenue Decline in the U.S.: The U.S. revenue declined by 7.6% year-over-year on an adjusted constant currency basis, driven by lower pricing and volumes due to channel dynamics.
China Market Headwinds: Ongoing market dynamics and broader geopolitical and trade environment in China are causing headwinds, with recovery expected to be more weighted towards the fiscal second half.
Pen Needle Revenue Decline: Pen needle revenue declined by 4.4% year-over-year, primarily due to U.S. and China performance issues.
Shift in Diabetes Treatment: Long-term shifts in diabetes treatment towards insulin pens are negatively impacting U.S. syringe revenues.
Contract Manufacturing Revenue Decline: Revenue from contract manufacturing declined by 16.7% due to continued in-sourcing of products by Becton, Dickinson.
Incremental U.S. Pricing Headwinds: Incremental pricing pressures in the U.S. are expected to impact financial performance, with guidance now closer to the lower end of the range.
Regulatory and Competitive Challenges: Regulatory approvals and competitive intensity in the U.S. are affecting revenue expectations, particularly in the first half of the fiscal year.
Italian Payback Measure: An estimated 0.1% year-over-year headwind is expected due to the Italian payback measure.
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Guidance & Outlook
Revenue Guidance: Reaffirmed guidance range for fiscal year 2026, with revenue expected to be flat to down 2% on an adjusted constant currency basis compared to 2025 levels. As-reported revenue guidance is between -0.9% to +1.1%, resulting in a range of $1.71 billion to $1.93 billion. The company expects to be closer to the lower end of this range.
Adjusted Operating Margin and EPS: Reaffirmed guidance for adjusted operating margin between 29% and 30% and adjusted EPS between $2.80 and $3. The company expects to be closer to the lower end of these ranges due to incremental U.S. headwinds.
Free Cash Flow and Debt Repayment: Anticipates generating $180 million to $200 million in free cash flow, closer to the lower end of the range. Plans to repay approximately $150 million in debt during fiscal year 2026.
Quarterly Revenue Cadence: Expects approximately 46% of adjusted revenue in the first half of fiscal year 2026 and 54% in the second half. Lower first-half revenue is attributed to U.S. customer mix, competitive intensity, and channel dynamics, while the second half is expected to benefit from stronger international performance.
International Business Outlook: Improved outlook for international business performance, particularly in EMEA and Latin America, offsetting some U.S. headwinds.
China Market Recovery: Recovery in China is expected to be more weighted towards the second half of fiscal year 2026 due to ongoing market dynamics and geopolitical factors.
GLP-1 Strategy and Market Launches: Partners anticipate initial generic GLP-1 launches in markets such as Canada, Brazil, China, and India beginning in calendar year 2026, with additional emerging markets to follow. The company is operationally ready to support these launches.
Oral GLP-1 Therapies: The launch of oral GLP-1 therapies was anticipated and included in the company's assumptions for a $100 million-plus opportunity. No significant incremental capital investment is expected to support this volume.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What were the dynamics observed in the U.S. business during the quarter, including distributor ordering, pricing impact, and volumes?
A:The U.S. business saw a year-over-year decline of about 7.4%, driven by lower pricing and lower volume. The lower volume was due to channel and contractual dynamics, while the pricing impact was influenced by a different customer and product mix compared to the same quarter last year. Advanced purchases ahead of a January 1 price increase partially offset the volume decline.
Q:What is the outlook for the Chinese market and its recovery in the second half of the year?
A:China's performance in Q1 was in line with expectations, but the first half of the year is expected to be a headwind. Recovery is anticipated in the second half of the year, supported by initiatives like reorganizing the sales force and introducing a new pen needle to compete with local brands.
Q:Why do injectables still have a place in the market despite the introduction of oral GLP-1s?
A:Injectables have better weight loss profiles and are preferred in cases where patients have aversions to needles, limited cold storage, or as maintenance therapies. Early data suggests orals are expanding the market rather than replacing injectables. Major drug companies continue to develop injectable drugs, and recent approvals like Zepbound's quick pen indicate ongoing demand for pen needles.
Q:What contributed to the strength in the international market, particularly in EMEA and Latin America?
A:The strength in the international market was attributed to superior execution, particularly in Latin America, where the team won a large new customer driving growth.
Q:What are the incremental pricing headwinds and their impact on the revenue guidance?
A:Incremental pricing headwinds have led to the company expecting revenue closer to the lower end of the guidance range. The original guidance assumed flat pricing year-over-year, but recent dynamics have impacted the U.S. business. Volumes are now expected to be relatively stable year-over-year, with new product contributions offsetting contract manufacturing headwinds.
Q:What is the status and timeline for the pen injector project?
A:The pen injector project is in its early phases. The company has the R&D and manufacturing capabilities to develop the product and established relationships with generic drug companies for distribution. However, it is too early to provide details on timing and market sizing.
Q:What is the penetration curve for the GLP-1 opportunity to reach $100 million in revenue by 2033?
A:The $100 million estimate includes assumptions about patient numbers, oral GLP-1 adoption, obesity and diabetes indications, reimbursement, and delivery formats. Upsides include expanded reimbursement, price reductions, and new branded pharma discussions. The ramp-up will be driven by patent expirations, with generic launches expected in regions like China, India, Brazil, and Canada starting in 2026.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the timeline and market sizing for the pen injector project, citing its early development stage. Additionally, while discussing the GLP-1 opportunity, they did not provide a detailed penetration curve but reiterated confidence in the $100 million revenue target by 2033.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Conference
EMEA Latin
GLP therapy
Medicare payer
Today
access product
approval
calendar
capability
capital allocation
channel
completion
delivery partner
development
drug delivery
focus
foundation
infrastructure
insulin delivery
launch GLP
launch market
line expectation
news
place
portfolio area
portfolio expansion
range
result line
road map
seed phase
stage discussion
standup phase
supply
EMBC Transcript
Embecta Corp. (EMBC) Q1 2026 Earnings Call Transcript
Unknown2-5
The earnings call presents a mixed picture: while there are positive aspects such as debt repayment and a strong international market, there are notable concerns. The U.S. business faces pricing and volume challenges, and the revenue guidance is at the lower end due to pricing headwinds. Furthermore, the decline in operating margin and unclear timelines for new projects add to uncertainties. The Q&A section reveals some optimism about future opportunities, but lacks detailed guidance. Overall, these factors balance out to a neutral sentiment.
Embecta Corp. (EMBC) Presents at 44th Annual J.P. Morgan Healthcare Conference Transcript
Neutral1-14
Embecta Corp. (EMBC) Q4 2025 Earnings Call Transcript
Positive11-25
Despite a decline in revenue guidance, the company has improved its margin and EPS outlook, indicating operational efficiency. The Q&A highlights potential growth from GLP-1 partnerships and strategic actions in China, which could mitigate current challenges. The company's debt reduction and capital deployment plans also signal financial health. Overall, the positive aspects outweigh the negatives, suggesting a likely stock price increase.
Embecta Corp. (EMBC) Q3 2025 Earnings Call Transcript
Unknown8-8
Despite strong operating income and net income growth, the lowered revenue guidance and absence of share repurchase plans weigh on sentiment. The Q&A reveals concerns about declining Q4 margins and geopolitical risks in China. Positive factors include debt reduction exceeding targets and potential benefits from the CMS proposal. Overall, the mixed signals and uncertainties lead to a neutral outlook.
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