管理層發言
Thank you for standing by. My name is Janine, and I will be your conference operator for today. At this time, I would like to welcome everyone to The Cooper Companies' Earnings Conference Call. I will now hand the call over to Kim Duncan, Vice President of Investor Relations and Risk Management. Please go ahead.
Good afternoon, and welcome to Cooper Companies Second Quarter 2026 Earnings Conference Call. Today's call, we will discuss results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today's call are Al White, President and Chief Executive Officer; and Brian Andrews, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements, including statements relating to revenues, EPS, cash flows, interest, FX and tax rates, tariffs and other financial guidance and expectations, strategic and operational initiatives, market conditions and trends and product launches and demand. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the company to differ materially from those described in forward-looking statements are set forth under the caption Forward-Looking Statements in today's earnings release and are described in our SEC filings, including Cooper's Form 10-K and Form 10-Q filings, all of which are available on our website at coopercos.com. Also as a reminder, the non-GAAP financial information we will provide on this call is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP as well as non-GAAP and refer to the reconciliations provided in our earnings release which is available on the Investor Relations section of our website under Quarterly Materials. Should you have any additional questions following the call, please e-mail ir@cooperco.com. And now I'll turn the call over to Al for his opening remarks.
Thank you, Kim, and welcome, everyone, to our Q2 Earnings Call. We delivered record revenue and non-GAAP earnings this quarter with revenues growing 8% to $1.08 billion and non-GAAP earnings per share increasing 26% to $1.21. This marks our tenth consecutive quarter of beating consensus earnings expectations, demonstrating the consistency and disciplined execution of our operating model. We also generated another quarter of robust free cash flow, reinforcing confidence in the strength and durability of our cash generation. CooperVision reported a solid quarter with revenues increasing 8% or 4% organically driven by continued strength in the Americas and momentum in EMEA. CooperSurgical also performed well with revenues up 8% or 6% organically, led by our fertility business growing 13% or 10% organically. We also delivered meaningful operating margin expansion this quarter as back office consolidation and efficiency initiatives continue to deliver operating leverage, especially within CooperSurgical. Overall, our results reflect steady execution against our strategy of driving sustainable, profitable growth through innovation, new product introductions, leveraging our infrastructure, generating free cash flow and gaining market share. Now before moving into the quarterly details, let me address two key topics. First is our strategic review. We initiated this process to evaluate opportunities to unlock long-term shareholder value across a range of potential outcomes. At the same time, we've been working through litigation related to a December 2023 embryo culture media recall in our fertility business. We've now reached settlements with substantially all of the claimants in this case as disclosed in the Form 8-K, which was filed this evening with our earnings release. With that done, we are now actively advancing discussions with multiple parties that have submitted significant indications of interest in CooperSurgical. To summarize that activity, we've received robust interest in CooperSurgical and in conjunction with our Board and the assistance of our advisers, we're focused on identifying the optimal path forward to maximize shareholder value. CooperSurgical's strong performance, highlighted by record revenue and non-GAAP earnings this past quarter, strengthens our confidence in the business and underscores our view that this is a very valuable asset. That said, we are working with speed and plan to provide a more definitive update to the market soon. Second is an update on our capital allocation strategy. We remain focused on investing in high-return organic growth opportunities, maintaining balance sheet flexibility and repurchasing shares. While buybacks were limited this quarter, they remain a core part of our strategy, and we expect to be significantly more active moving forward. With that, let's turn to our Q2 performance, starting with CooperVision. After achieving an 18th consecutive year of share gains in 2025, our focus is on extending that streak. We remain the number-one global contact lens company with roughly one-third of all wearers using CooperVision lenses and we expect this leadership position to continue serving as a key driver of revenue share gains as wearers continue transitioning to daily silicone hydrogel lenses. Additionally, our leadership position in pediatric myopia control through MiSight will remain an important growth driver. For the quarter, CooperVision delivered revenue of $724 million, driven by share gains in both the Americas and EMEA. The Americas grew 7%, supported by continued strength in premium lenses, while EMEA increased 6%, fueled by strong demand for MyDay and MiSight, further reinforcing our number-one position in that region for both revenue and wearers. In Asia Pacific, revenue declined 6% as we continue repositioning our portfolio including rationalizing legacy hydrogel products and managing through broader market softness across the region, including greater-than-expected weakness in Japan, which created additional headwinds and further pressured our results. Turning to products. Daily silicone hydrogel lenses grew 8% with our flagship MyDay brand delivering double-digit growth driven by expanding customer partnerships and success with premium products. We also saw gains across both branded and private label channels with improvement across all regions and particular strength in multifocals and Energys. Both of these products remain key growth drivers as we continue rolling them out in new markets. The multifocal has excellent momentum supported by its next-generation optical design that enables an easy-to-fit lens with consistent performance across different lighting conditions, distances and patient profiles. Energys continues to perform exceptionally well, benefiting from its innovative design that combines premium optics with advanced material technology designed specifically for maximum comfort in today's always-on digital lifestyle. With respect to clariti, we continue to upgrade the portfolio, including upcoming launches of our next-generation multifocal in EMEA and Asia Pacific and the toric and multifocal launch in Japan. Turning to our FRP portfolio. Biofinity delivered strong results, growing 5% organically. Growth was led by toric and multifocal lenses, including our market-leading extended ranges and made-to-order offerings. Parameter breadth continues to be a key driver for Biofinity supported by our highly innovative and flexible manufacturing platforms that offer more than six times the prescription options than all other monthly brands combined. As a result, eye care practitioners can fit virtually any patient who walks through the door using just this one product family. Turning to myopia control. MiSight delivered an excellent quarter, growing 24% to $32 million. Our newest market, Japan, is exceeding expectations with strong and accelerating momentum. We recently hosted the Sixth Annual Asia Pacific Myopia Management Summit in Tokyo, highlighting the clinical performance and patient benefits of MiSight and are seeing increased awareness and adoption following the event. Also, our recent launch of the highly innovative MyDay MiSight in Europe is performing extremely well as eye care practitioners absolutely love this product and we're seeing a similar reception as we expand availability globally. At the same time, we're increasing our consumer awareness activity during the high-demand back-to-school period by having multiple markets run national marketing campaigns to further build parent awareness. Overall, these initiatives spanning innovation, geographic expansion, customer partnerships and consumer activation reinforce our confidence in MiSight's continued robust growth. Turning to CooperSurgical. Q2 revenue reached $358 million, reflecting growth of 8% or 6% on an organic basis. Within this, fertility performed well, growing 10% organically to $144 million. Growth was driven by strength across our leading global portfolio of products and services, including capital equipment, where we saw strength in the U.S. and continued global momentum from Witness, our highly successful automated lab tracking system. These capital sales provided a near-term lift while also positioning us for longer-term growth as they drive incremental consumable demand over time. Additionally, late-quarter buy-in activity in the Middle East contributed to performance as distributors restocked following the reopening of airspace. Geographically, results were led by EMEA, where we continue gaining share, and solid performance in the Americas. Asia Pacific was mixed with softness in China, offset by strength in other markets. By product category, growth was led by genomics, capital equipment and consumables supported by new clinic wins, expansion within existing accounts and continued adoption of recently launched products. Looking ahead, underlying fertility trends remain healthy, and we anticipate continued strength in the back half of the year with fertility expected to grow in the mid-single-digit range. The long-term outlook also remains positive, supported by a strong innovation pipeline, particularly in our equipment portfolio. Regarding the overall global fertility market, we continue to expect steady improvement supported by improving cycles and increasing investments in technology and workflow optimization by fertility clinics. The fundamental drivers of the industry also remain intact, including the ongoing trend of delayed childbirth and expanding access to care. This was recently highlighted in the U.S. with updated CDC data showing U.S. fertility rates fell in 2025 to a new annual low of 3.6 million births. Within this, women aged 30 and older now comprise 53% of all births and for the first time in the U.S., more babies were born to women 40 and above than to women under 20. In response to these trends, support for expanding IVF coverage is growing. For example, in California, starting in January this year, most large group health plans with over 100 employees are now required to cover IVF and infertility treatments, significantly increasing access to care. Moving to Office and surgical products and services, sales reached $214 million, up 4%. Medical devices grew a healthy 6% as our surgical OB/GYN and specialty devices continued to deliver strong performance. Paragard came in ahead of expectations, delivering flat revenue for the quarter. Now before I turn the call over to Brian, let me conclude with a few comments on our revenue guidance. For CooperVision, we're guiding to full year organic growth of 3.5% to 4.5%. Similar to our peers, we expect market growth at the low end of the historical 4% to 6% range with Asia Pacific weighing on the category, while EMEA and the Americas remain healthy. Importantly, this softness is regional, not global, and we view it as temporary as Asia Pacific resets amid economic pressure, especially in China and Japan and to a lesser extent, Korea. Specifically for CooperVision, we now expect Asia Pacific to decline in Q3 with pressure from both the market and our ongoing rationalization of legacy hydrogel products. That said, we now have full regional leadership in place, including a new regional head and new country managers in Japan, Korea and China, and we're seeing strengthening execution and commercial discipline, including progress on MyDay contract wins and product launches. Outside of Asia Pacific, demand remains solid for premium products, including daily silicone hydrogel lenses as well as torics and multifocals. For CooperSurgical, our guidance is unchanged at 4% to 5% organic growth. And with that, I'll turn the call over to Brian.
Thank you, Al, and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis, so please refer to today's earnings release for a reconciliation of GAAP to non-GAAP results. For the second fiscal quarter, consolidated revenue was $1.08 billion, representing an 8% increase year-over-year or 5% on an organic basis. Gross margin of 68.1% was roughly flat year-over-year as positive currency offset higher costs, including tariffs. Operating expenses rose just 1% reflecting benefits from last year's reorganization that delivered efficiencies across the organization. This progress is particularly evident at CooperSurgical, where expenses declined year-over-year for the second consecutive quarter. Importantly, this significant operating leverage has been achieved while continuing to invest in key revenue growth initiatives. Operating income increased 19%, resulting in a 27.5% operating margin. Interest expense was $20.9 million and the effective tax rate was 15.4%. Non-GAAP EPS grew 26% to $1.21 with roughly 196 million average shares outstanding. Strong free cash flow of $96 million was used to reduce net debt to $2.3 billion and repurchased $13 million of stock. Before moving to guidance, let me address the litigation charge we took this quarter. In December of 2023, CooperSurgical initiated a voluntary recall of one batch of embryo culture media consisting of three specific lots, which led to claims and lawsuits being filed across various jurisdictions, alleging damages associated with the use of the product. Between December 2023 and mid-March 2026 we resolved a significant number of claims and lawsuits through settlements, which were largely covered by insurance. From mid-March 2026, we identified developments which resulted in a reassessment of our exposure. With this, we've proceeded with negotiations and reached settlement agreements covering over 95% of claimants. Based on this, we concluded that a loss is probable and reasonably estimable, particularly with respect to potential exposure exceeding available insurance coverage. The net impact to resolve outstanding claims was $271.6 million, consisting of $324.1 million of accrued settlement, partially offset by $52.5 million of insurance recoveries. We have excluded this charge from our non-GAAP earnings. Additional information regarding this matter is provided in the Form 8-K filed today with the earnings release, and further accounting details will be included in our Form 10-Q, which we anticipate filing tomorrow, June 5. Turning to the full year fiscal 2026 guidance. We've updated expectations with revenues expected to be roughly $4.28 billion to $4.32 billion, reflecting growth of 5% to 6% or organic growth of 3.5% to 4.5%. CooperVision revenue is expected to be in the range of roughly $2.88 billion to $2.91 billion, up 5% to 6% or 3.5% to 4.5% organically. CooperSurgical remains essentially unchanged with a range of roughly $1.4 billion to $1.41 billion up 4% to 5% as reported and organically. Interest expense is expected to be around $85 million, and the effective tax rate is expected to be around 15.5%. For earnings, we're maintaining guidance at $4.58 to $4.66 and we're increasing our 2026 free cash flow outlook to roughly $650 million, excluding any litigation payouts, the majority of which we do expect will be made during fiscal 2026. There are several key considerations underlying this guidance. As discussed on prior earnings calls, we continue to expect gross margins to decline year-over-year. For the third quarter specifically, we expect gross margins of approximately 66%. This is primarily driven by unfavorable FX and certain higher costs, including tariffs, freight and the impact of lower production at CooperVision, where success from our new AI-enhanced inventory control system is allowing us to reduce inventory levels. Importantly, while this inventory work will occur over time, it benefits free cash flow, reinforcing our confidence in our 2026 free cash flow objectives and in achieving $2.2 billion in free cash flow from 2026 through 2028. Regarding tariffs, our guidance assumes approximately $22 million this fiscal year but does not include any potential tariff refunds. Should refunds materialize, they could be as much as $15 million and would provide meaningful upside. The guidance also does not include any accretion from share repurchases. With that, I will turn it over to the operator for questions.
分析師問答
Our first question comes from the line of Jeff Johnson from Baird.
Thank you. Good afternoon, guys. Can you hear me okay?
Yes. Jeff.
So a couple of questions here. Let me just start first on APAC, expecting another quarter of declines. I think we're four quarters in a row now flat to down. You do swing from kind of a plus 5% comp that you came against this quarter when you did the minus 6% to a negative 5% comp if my model is correct. So how do you — what are the drivers of that staying negative on top of a negative 5% comp? And just any progress you're making on getting through some of those older hydrogels and any other updates you can provide on what's going on in Asia Pacific. Then I have one MiSight follow-up question.
You're exactly right from a comp perspective on how we move from Q2 to Q3. The difference in that market from what we've seen in prior quarters is softness in the market itself. The Asia Pacific market, especially when we look at Japan and China, is softer than we anticipated. It looks like, as we sit here, it's going to continue to be soft and that softness is market-driven. We're continuing to execute on MyDay and reposition products and rationalize hydrogels, but we're doing it in a market that is now considerably softer than when we started the process. We still have a little ways to go on rationalizing the hydrogel products, and it's going to continue to put pressure on us probably through 2027 even. But we're starting to get it behind us. The numbers are starting to get smaller, so the impact is being reduced.
All right. Let me just pull on that thread and I'll just ask my MiSight question on the call back tonight. But just as you talk about that potentially continuing through 2027, should we think about APAC then — and I know it's hard to predict where the market goes — but especially for your part of the business on reducing some of that FRP exposure there or the hydrogel exposure. Should we think about Asia Pacific being flat as we get into 2027? Are we going to stay in negative territory for the next six quarters? Again, I know it's hard to predict and you don't guide by geography or product line, but just on that comment and sorry about the dog. But on that comment, if you can provide any color.
It will be dependent largely on what that market does. I think we get to a point here probably even in Q4, not this quarter but next quarter, where we're going to be essentially in line with the market. I think we'll probably grow in line with the market in 2027. So it will end up being dependent on that market. Right now, I would probably argue that market is essentially flat; it might even be down a little bit. We'll see what the market does, but I think we'll at least be back in line with the market in Q4 of this year and through 2027.
Our next question comes from the line of Jon Block from Stifel.
Maybe I'll just start with the strategic review for CSI. I'm just curious as that interest that you cited from multiple parties, is that for the entire CSI business? Or is it, call it, different parties more looking for different pieces of the business? Any color that you can provide and sort of elaborate there?
We received significant interest in the entire business and in pieces of the business both. There's a sufficient number of parties that have given indications of interest in the entire business; that's how we're moving forward.
Okay. Fair enough. And then, Brian, I'll do some sort of real-time math, which is always dangerous. But the first half EPS for the year is, I think, $2.31, if I've got that right. It's exactly 50% of the full year guidance at the midpoint. For each of the past three years, first-half was closer to about 45% or 46%. So that would imply maybe some upside to the EPS guidance. I know you called out maybe those inventory dynamics with AI, better controlling the inventory and therefore less consumption. But is that everything? Or why would you have that delta relative to past years when it does seem like you guys are doing a really good job on the OpEx side of things?
Jon, thanks for the question. We are driving strong operational results, top to bottom, including stronger sales, margins and leverage. I think there is a bit of a mismatch really between how the Street and we modeled FX for the year. I gave an FX tailwind last quarter of 1% for the year. What you saw in the first half was a pretty decent amount of FX favorability that flowed through the bottom line. The EPS growth that you saw in the 20s between Q1 year-over-year and Q2 is a direct result of the work we've done exiting Q4 to drive a stronger operating model. But the FX favorability I talked about last quarter was expected to turn decently negative in the second half of the year. So that starts in Q3 and again in Q4. It's likely a bit of a timing and modeling phenomenon. Expect continued strong operational delivery with the usual noise around tariffs and other costs that I mentioned.
Next question comes from the line of Jason Bednar from Piper Sandler.
I'll actually follow up real quick here on the guide. A couple of pieces here. Just really in the context of you beat consensus by $0.11, we're not touching the guide here for the rest of the year. Is that a little bit of conservatism, maybe some uncertainty around APAC demand on the CVI side? Just trying to juxtapose that against raising last quarter when you beat as well. Is there something different here as we think about the philosophy? And then on the $2.2 billion free cash flow figure, I just want to confirm that's more of an adjusted figure that doesn't account for the litigation outflow that we got over the settlement that we learned about today.
I'll take the second one first. The $2.2 billion free cash flow figure is inclusive of our expected payouts related to litigation. We're delivering strong operating results this year and expect that to continue. The work to optimize inventory through our technology-enabled systems is helping drive better inventory balances; while that pressures gross margins for the remainder of this year and next year, it improves free cash flow. So the $2.2 billion essentially reflects our expectations including the litigation payouts. On why EPS guidance remains the same, as I mentioned to Jon, FX is the main driver. The year-to-date impact for Q2 was $0.08 and we expected that when we exited Q1. The delta is the FX unfavorability in the second half. We are expecting some higher costs, and we've taken down CooperVision revenues a bit. We believe the guidance is prudent.
All right. Helpful. Just maybe one follow-up here on the share repo strategy. The stock is as cheap as it's been in a long time, but this is a lower buyback activity period relative to what we saw last quarter. Were you blacked out at all from buying back stock in the quarter? Was U.S. free cash an issue? I'm trying to figure out the approach you took. I hear you're going to be more active going forward. Was there something else that limited activity here in the fiscal second quarter?
Yes, Jason. We started purchasing a few shares back, a very small amount, essentially a few days after we reported earnings but then took a conservative position on share buybacks given other activity. We do not have those restrictions now and would anticipate exiting this call being much more aggressive on share buybacks going forward.
Next question will be coming from Larry Biegelsen from Wells Fargo.
I'm going to ask two on the strategic review. First, historically, I think you've believed that it made sense to keep CVI and CSI together. What's changed for you?
The reason I liked keeping them together was flexibility. One business might be stronger than the other in a given period, and being combined allowed us to move resources and leverage cash flow. We believed we could extract significant back office synergies once we paused acquisitions and had time to consolidate, which we have done. You're now seeing the leverage from that work and the increase in cash flow. That said, I also look at the market and our valuation today, which I believe is too low, and I see that CooperSurgical is a strong business. We're in a position where private investors may be willing to pay a premium over public markets. If that is true and it maximizes shareholder value, we'll act accordingly. We will do what's best for shareholders and, if transacting is the right path, we'll pursue it.
Okay. Second, do you expect to have an update before the next earnings call? You said soon. And is there any reason why a deal wouldn't happen for CSI based on the offers coming in?
It's a bit tough to say precisely. The litigation was holding the process back, and now that it's settled, we're in round two and moving quickly. If progress happens before we report earnings at the beginning of September, we'll issue a release. If not, we'll provide updates as appropriate. There's nothing currently holding us back from moving very quickly.
Our next question comes from the line of Xuyang Li from Jefferies.
To begin, can you make some comments on fiscal Q3 and Q4 revenue split, any color to help us model that out?
Directionally, CooperVision should be okay in Q3 and a little bit better in Q4. CooperSurgical should have a decent Q3 and a decent Q4. We don't provide specific quarterly guidance, but that's the directional cadence I would expect.
Great. On the fertility business, it rebounded to double digits earlier than expected. Can you talk a bit more about what you're seeing in the market and how that can continue through the rest of the year?
We went through a period of consolidation among fertility clinics with a focus on profitability, which depressed results for a while. Now the market is improving. We had a good quarter from capital equipment sales, which can be lumpy but drive future consumable demand. We also saw distributor buy-ins in the Middle East tied to reopening airspace. The market is getting a little better; it won't shoot up, but it should continue to progress and we're taking some share. Results may be lumpy with capital, but underlying trends are positive.
Next question is from Steve Lichtman with William Blair.
Al, it sounds like you're seeing a firm end market in the U.S. and Europe. In the U.S., what are you seeing on price? I know you've been conservative on that, but do you see some opportunities given maybe inflation staying stubbornly high?
Pricing in the U.S. is okay, and pricing in EMEA is okay; Asia Pacific remains a challenge. We took pricing earlier this year as we normally do and have seen some competitors take pricing as well. We'll continue to evaluate pricing opportunities. Outside Asia Pacific, there's strong interest in premium, higher-priced products and not much pushback on some price increases or transitions to premium products. We'll monitor costs as inflation persists and take action when appropriate.
Got it. In Japan, have you launched clariti toric and multifocal? Could that help in that lower price environment you've been dealing with?
That is launching soon. Having the full clariti family in Japan will help us transition hydrogel wearers to silicone hydrogel and give us the opportunity to compete better in that market. I don't think it will have much impact this fiscal year, but we should see a positive effect in Q4 and more in 2027.
Next question is from Travis Steed of Bank of America.
I wanted to ask about the lower revenue guidance, the 100 basis points lower. Is that all APAC? What exactly has changed versus three months ago in APAC? Is it more market, more execution? Is the market softness new?
Yes, it's Asia Pacific and it's market-based. It's consumer weakness particularly in Japan and China. Those markets are more consumer-driven for contact lenses and we're seeing some discretionary softness and weaker consumer activity there.
If there is a CSI sale, I would assume the proceeds are used for buybacks. Is that the right assumption?
That's correct. I would assume a vast majority of proceeds would be used for share buybacks. We'll evaluate RemainCo's balance sheet and other items, but a significant portion would be used for repurchases.
Next question from David Saxon of Needham & Company.
Following up on APAC being down 6%, how much of that was market softness versus rationalizing legacy hydrogel products? And on that repositioning, what inning are you in at this point?
It's always hard to parse precisely, but about half of the decline was market-driven. From a hydrogel rationalization perspective, we're more than halfway through the process but not finished—call it the fifth inning. We still have work to do.
On clariti, it sounds like it was probably in line with last quarter's growth. What's the outlook for that product into the back half of '27?
Clariti was actually a little weaker this quarter than last quarter; MyDay was stronger and more than made up for it. The priority for clariti is proper positioning in Asia Pacific and getting the full set of product launches out, including multifocal. The market continues to gravitate toward premium products, which is not clariti's positioning. Clariti is very easy handling and ideal for new wearers, but it's not a premium-priced product. If we complete the launches and repositioning, clariti should recover.
Next question is from Anthony Petrone from Mizuho Group.
On CSI strategic comments, is there any major difference in the margin profile of office surgical and fertility if you consider piecemeal versus whole? And if CVI were stand-alone, where would the bulk of capital allocation go and what might a stand-alone effective tax rate look like?
I won't get into too much speculative detail. As a stand-alone CooperVision, we would generate decent free cash flow and I would imagine a significant portion would go to a consistent share buyback program. Regarding margins, CooperSurgical is fairly integrated with co-located plants and distribution; splitting pieces is more complex operationally. Right now, we are proceeding with interest in the entire business because there is enough interest at high levels to pursue that path. Tax for a RemainCo CooperVision would probably be fairly similar to what it is today.
Next question from Navann Ty from BNP Paribas.
On CVI, can you discuss the contribution of the new launches, including MiSight in Japan and MyDay MiSight in Europe, for Q2 and the rest of the year? On CooperSurgical, peers called out improving market conditions and IVF cycles—do you see similar trends and changes in competitive landscape? Finally, did the litigation slow down the review process by a quarter or so?
Litigation did slow down the process and it is now settled, so we are moving forward. On fertility, I agree with peers pointing to a strengthening market; we are seeing improvements and are taking share in some segments. For MiSight, there is a push and pull. Spectacles entering the market are a short-term negative for contact lens growth, but overall demand for myopia control is accelerating as awareness grows. MyDay MiSight in Europe has been received well and MiSight in Japan is performing strongly. We continue to invest in R&D and new products. While glasses have been performing well globally, that is not a long-term negative for myopia control adoption. We're focused on expanding availability and awareness and will continue to invest to capitalize on the category's growth.
The next question is from Joanne from Citigroup.
I want to touch base on two things: an update on the manufacturing of MyDay lenses, and Paragard, which looks flat year-over-year—what's going on there?
Paragard was flat against a hard comp; last year we launched the single-hand inserter which was a strong contributor. We expected Paragard to be down, but it was flat this quarter, which is positive. The team is selling it well and it's well positioned. On lens manufacturing, we continue to execute. Our internal inventory got a little high as we were supporting logistics and private label customers. We implemented a new AI-based inventory control system and the team has done an excellent job. That work is allowing us to reduce inventory levels and will continue through the rest of this year and into next year. It pressures gross margins in the near term due to lower production volumes, but it has a positive impact on cash flow and overall efficiency.
Next question is from Robbie Marcus from JPMorgan.
On the Asia Pacific market weakness, is the issue that volumes are declining in the market, consumers shifting to private label, extending wear more than usual, or trading back to glasses? We want to understand the nature so we can gauge transience.
You're seeing some of each: changes in wearer behavior, some people shifting to glasses, some shift to online purchases and e-commerce, which is not where we're strongest. Those dynamics happen periodically in markets and can last about a year before annualizing and potentially reversing. So this is largely driven by those consumer dynamics and a shift to more online purchasing in some markets, which is a headwind for us.
As we think about a potential separation of the women's health business, how should we think about fully burdened operating margins for each company and free cash flow generation? You mentioned back-office synergies; would that create dissynergies to stand them up separately? Also, what about tax implications?
There are back-office consolidation benefits we've already realized in HR, finance and IT. CooperSurgical still has its own team, so dissynergies to separate exist but may not be as significant as some expect. Manufacturing and distribution are largely separate today, which helps. Free cash flow per revenue dollar is higher at CooperSurgical than CooperVision, but CooperVision has upside because CapEx should decline materially. We'll provide more detailed information if a transaction becomes real. Tax for a RemainCo CooperVision would likely be similar to today.
Next question from Brett Fishbin from KeyBanc Capital Markets.
On operating margin improvement in the quarter, can you provide directional split on how much was driven by durable cost-structure changes versus FX or favorable mix tied to lower sales in APAC CVI this quarter?
CooperSurgical drove a decent portion of the operating margin upside due to consolidation and back-office efficiencies. We also leveraged corporate expenses, and CooperVision did a nice job leveraging its P&L. FX was a positive compared to earlier in the year, contributing to the overall improvement. So it's a combination of durable underlying improvements and temporary benefits like FX and mix.
On the MiSight Japan launch, momentum has picked up. Any updated thoughts on the broader opportunity, TAM or contribution to MiSight revenue over the next six quarters?
I'm optimistic about the myopia control market. It was progressing slowly when we were the primary driver, but now other categories like spectacles are accelerating awareness and adoption. Markets such as China and parts of Europe show strong growth. We are the only contact lens company with an FDA-approved product in this category, and Japan has many myopic children; MiSight should perform very well there. We're considering additional investments as the market picks up to capitalize on our position.
Next question will be from Chris Pasquale from Nephron.
Al, on fertility: 10% growth this quarter but guidance implies mid-single digits in the back half. Is the delta a bolus of capital sales this quarter that we should view as one-time, or are there other factors?
The delta was a combination: capital equipment strength and late-quarter distributor buy-ins in the Middle East tied to airspace reopening. Capital can be lumpy and provided a near-term lift, but it also drives future consumable sales. We expect fertility to grow mid-single digits in the back half; we're not back to consistent double-digit growth yet, but trends are improving.
One quick one for Brian: do you plan to seek refunds for prior tariff payments, and when do you expect clarity on potential refunds?
We are in the process of filing for tariff refunds. We mentioned potential refunds of up to about $15 million. Many refunds have been submitted and we just received a small refund recently. These refunds are not included in guidance. If we receive refunds in Q3 and Q4, that will be upside to guidance.
Last question from Marco Espaillat on for David Roman of Goldman Sachs.
As you think about retaining the earnings guidance with the top-line reduction, can you talk about the interplay between protecting the P&L and sustaining growth investments?
We consistently look to balance investing in growth with protecting profitability. We're investing in launches and supporting them commercially while leveraging back-office improvements. There's a lot of activity across the company, and we need to manage potential disruption as we execute. We believe the guidance range is prudent given everything that's happening and puts us in a position to deliver while continuing to invest in growth.
Thank you. There are no further questions at this time. I will now hand the call back over to Al for closing remarks.
Great. Thank you, operator, and thank you, everyone, for being on the call today. There's a lot going on right now. We're working hard and making progress in many areas. We look forward to continuing to make progress and communicating that in the future. Thank you for the call and we look forward to talking to you in the coming months.
This concludes today's conference call. Thank you for your participation. You may now disconnect.