Carl Zeiss Earnings: Challenges Persist, With Sales and Margin Down, but Long-Term Value Remains

Narrow-moat Carl Zeiss reported third-quarter earnings that were largely in line with our expectations. Total sales of EUR 540 million were slightly up year over year but down by roughly high single digits after excluding contributions from the Dutch Ophthalmic Research Center acquisition, which closed in April. Consistent with guidance from the firm’s business update two months ago, both gross and EBIT margins were significantly depressed and were down by mid- and high-single-digit rates, respectively, compared with last year. A challenging macro environment, high interest rates, and uncertain consumer sentiment weighed down investment appetite. Furthermore, unfavorable product mix from the sluggish China market driven by a slower-than-expected implementation of volume-based procurement policy and a late start to peak summer season dragged profitability.