Cooper Companies (COO) 2025 Earnings Quality Report

Grade: F — Major Red Flags

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2025-12-05) + Yahoo Finance

Auditor: KPMG LLP — Clean opinion (served since 1982)

Fiscal Year: 2025 (ended October 31, 2025)

One-line verdict: Cooper is a stable mid-single-digit growth medical device company (contact lenses + fertility) whose books pass every qualitative test — clean auditor opinion, gross margin 66%, cash conversion 2.12x, M-Score -2.50 — but whose structural balance sheet trips three mechanical checks: accounts receivable grew faster than sales for two straight years, cash of just $110.6M covers only 4% of $2.5B in debt, and $5.4B in goodwill+intangibles equals 66% of equity. The F grade is entirely structural, not accounting-driven. KPMG's single Critical Audit Matter flagged the difficulty of auditing inventory and revenue across Cooper's decentralized global manufacturing network, not any specific valuation concern. Net sales grew 5% to $4.09B, but net income slipped from $392.3M to $374.9M as gross margin ticked down from 67% to 66% on inventory write-offs and restructuring costs.

Revenue: $4.09B — 5% Growth Across Both Segments

From the 10-K Consolidated Statements of Income (fiscal year ended October 31, 2025):

Revenue grew 5% overall. The MD&A breaks this down cleanly:

The 10-K attributes growth to: "Toric and multifocal grew primarily through the success of Biofinity and MyDay. Sphere, other grew primarily through MiSight and MyDay, offset by a decrease in legacy hydrogel products." On CooperSurgical: "office and surgical net sales increased primarily due to increased sales of Paragard contraceptive intrauterine devices and the acquisition of obp Surgical on August 1, 2024."

FX added roughly $16M to CooperVision sales in 2025 — a modest tailwind.

Gross Margin: 65.5% → 66% (Tick Down)

From the MD&A: "Consolidated gross margin decreased in fiscal 2025 to 66% compared to 67% in fiscal 2024, primarily driven by inventory and long-lived asset write-offs and severance costs related to workforce optimization initiatives."

SG&A grew 6% to $1.63B — outpacing revenue growth. The MD&A explains: "CooperVision's SGA expenses increased in fiscal 2025 compared to fiscal 2024 primarily due to increased selling activities, severance costs related to workforce optimization initiatives, and long-lived asset write-offs." The workforce optimization theme repeats across both segments.

R&D rose 11% to $172.2M — faster than revenue, which is good (product innovation investment).

The AR vs Revenue Divergence (A2 FAIL)

The engine's A2 check flagged: "AR outpaced revenue for 2 consecutive years."

From the 10-K balance sheet:

AR grew 15.6% while sales grew 5.1% — a 10.5-percentage-point gap. DSO went from 67 to 74 days. The 10-K discloses the allowance for credit losses grew from $43.5M to $51.9M, suggesting management sees some elevated collection risk.

The change in AR on the cash flow statement was ($120.3M) in 2025 vs. ($117.1M) in 2024. That's a consumer of cash both years.

This is the first year where the screen decisively flagged the trend — one year of AR growing faster can be explained by customer mix or timing; two consecutive years is a persistent pattern. It's the single most important operational red flag in this report.

Balance Sheet: $5.4B Goodwill+Intangibles, Thin Cash Cushion

From the Consolidated Balance Sheets as of October 31, 2025:

Engine flags:

Context: Cooper operates a classic "minimal cash on hand" treasury policy — cash sits at ~$110M against $2.5B in debt, but free cash flow is strong enough to service debt easily (see below). This is not a liquidity crisis; it's a capital structure choice. Debt/EBITDA is 2.4x (engine: "Healthy"), and interest coverage on $683M operating income against $100M interest expense is 6.8x.

The goodwill of $3.85B is largely legacy from prior acquisitions — CooperSurgical in particular has been built through roll-up acquisitions (CooperGenomics, The LifeGlobal Group, Generate Life Sciences, Cook Medical's reproductive health portfolio, and most recently obp Surgical in August 2024). Intangibles amortize at ~$199M/year.

Cash Flow: Strong Operating Cash Generation

From the 10-K Consolidated Statements of Cash Flows:

Strong trend: OCF grew from $607M to $796M (+31% over two years). CapEx came down from $421M to $362M. FCF jumped from $288M to $434M. Cooper initiated meaningful share repurchases in 2025 ($290.1M), the first buyback activity in the three years shown.

CFFO/NI = 2.12 — the engine notes: "Profits backed by cash."

The 10-K discloses $77.3M in "Other including asset impairment charges" in 2025 vs $42.9M in 2024 — almost double. The MD&A attributes this to "inventory and long-lived asset write-offs and severance costs related to workforce optimization initiatives."

Auditor: KPMG — The Decentralized Manufacturing CAM

KPMG has served Cooper as auditor since 1982 — a 43-year tenure. The 2025 opinion is clean.

KPMG's single Critical Audit Matter:

"Evaluation of the sufficiency of audit evidence over inventories and net sales...the Company recorded $846.0 million in inventories and $4,092.4 million in net sales as of and for the year ended October 31, 2025...Evaluating the sufficiency of the audit evidence obtained required subjective auditor judgment because of the decentralized structure and geographic dispersion of the Company's manufacturing and distribution locations."

KPMG's procedures included: "For certain locations where procedures were performed, we evaluated the design and tested the operating effectiveness of certain internal controls over the Company's inventories and net sales processes...We assessed the recorded inventories for each location where procedures were performed by participating in a physical inventory count and observing a sample of inventories on hand and comparing the cost recorded for a sample of inventories on hand to underlying documentation."

The 10-K lists Cooper's manufacturing locations: "CooperVision manufactures molded contact lenses, which represent the majority of our contact lens revenues, primarily at our facilities in Costa Rica, Hungary, Puerto Rico, the United Kingdom and the United States, with other smaller facilities also existing in multiple locations around the world."

KPMG's CAM is not a substantive concern — it reflects the inherent difficulty of auditing a globally distributed manufacturing company with multiple foreign locations. It does, however, line up with the AR growth trend: if certain locations have more aggressive receivable terms to win business, that would show at the consolidated AR level while remaining hard to trace through inventory and revenue audits alone.

18-Point Screening

Revenue Quality

Expense Quality

Cash Flow Quality

Balance Sheet

Acquisition Risk

Beneish M-Score

Additional Scores: F-Score 1.50, Z-Score 4.98 (safe zone).

Key Risks from the 10-K

1. Customer Consolidation in Contact Lens Distribution — Item 1A states: "CooperVision and CooperSurgical are encountering consolidation in their customer bases and emergence of more centralized large customer groups and retail chains. Due to this trend, global and regional key account customers now represent a larger proportion or concentration of our business and any disruption to these relationships may have a material adverse impact on our business." This dovetails with the AR growth trend — larger customers typically mean longer payment terms.

2. Tariffs and Global Trade Barriers — The MD&A cites: "escalating global trade barriers and disruptions, such as the impact of tariffs. These risks and uncertainties have adversely affected our sales, cash flow and performance in the past and could further adversely affect our future sales, cash flow and performance." Cooper manufactures in Costa Rica, Hungary, Puerto Rico, UK, and US, with exposure to multiple tariff regimes.

3. International Exposure — Item 1A: "A significant portion of our current operations are conducted and located outside the United States, and our growth strategy involves expanding our existing foreign operations and entering into new foreign jurisdictions." About half of net sales are derived outside the US. FX hedges are disclosed in OCI where cash flow hedge losses of $26.9M hit 2025.

4. FDA/Regulatory Risk — From Item 1A: "Any prolonged disruption in the operations of our existing manufacturing or distribution facilities or our fertility and stem cell storage facilities, whether due to work stoppages, technical or labor difficulties, integration difficulties, destruction of or damage to any facility (as a result of natural disaster, use and storage of hazardous materials or other events), enforcement action by the FDA or other regulatory bodies" could materially affect operations.

5. Reimbursement and Pricing Pressure — Item 1A: "Pricing pressure from our competitors, customers and changes in third-party coverage and reimbursement may adversely affect demand for our products and negatively impact our operating results." Contact lenses are increasingly sold through direct-to-consumer channels and insurance-subsidized programs.

6. Product Recall Risk — Item 1A: "We also face the risk that defects in the design or manufacture of our products or sales of counterfeit or other infringing products might necessitate a product recall and other actions by manufacturers, distributors or retailers."

7. Cybersecurity — Item 1A: "Cybersecurity threats continue to increase in frequency and sophistication; a successful cybersecurity attack could interrupt or disrupt our information technology systems, or those of our third-party service providers, or cause the loss of confidential or protected data which could disrupt our business, force us to incur excessive costs or cause reputational harm."

Summary

Grade: F. Clean accounting, but three structural balance sheet fails.

Cooper Companies is a stable medical device company — contact lenses (CooperVision, 67% of sales) and fertility/women's health (CooperSurgical, 33% of sales). Revenue grew 5%, gross margin held at 66%, operating cash flow grew 12% to $796M, and free cash flow of $434M gave management room to initiate a $290M buyback. KPMG has audited since 1982 and issued a clean opinion with a single, procedural CAM around auditing distributed global manufacturing locations. The Beneish M-Score is -2.50 and the Z-Score is 4.98 — both in safe zones.

The F grade comes from three mechanical fails:

What investors should watch:

This is a business with no fraud signals, solid cash generation, and durable franchises. The F grade is the engine doing its job on structural checks — the story beneath the grade is stability, not distress.

**Disclaimer**: This report is based on Cooper Companies' 2025 10-K (SEC EDGAR) and public financial data. This is NOT investment advice.

**About EarningsGrade**: We screen earnings reports for financial red flags. Grade F means major red flags were detected that require serious investigation before proceeding.