Bausch + Lomb Beat Its Own 2028 Margin Target a Year Early — and Lost Its CEO Anyway
A third guidance raise, 4.1x leverage and the best cash quarter since the IPO; meanwhile the generics problem, PreserVision and Alcon competition quietly vanish from the script.
BLCO · Earnings Call · 2026-10-28
The beat that arrived with a vacancy sign
Bausch + Lomb's third quarter was, by any operating measure, the best print of its public life. Revenue of $1.375 billion grew 8% constant currency across all three segments; adjusted EBITDA rose 34% to $325 million; the margin hit 23.6%, up 460 basis points year over year. Operating cash flow was $233 million, free cash flow $178 million — “This was our strongest quarter of cash generation, since the IPO 2022.” — Osama A. Eldessouky, Chief Financial Officer · 2026-10-28 Net leverage fell to 4.1x from 5.7x a year ago, against a 3.5x target management had given itself until 2028.
The absurdity is that this was the quarter where the CEO left. Brenton Saunders departed in what the company called a mutual agreement, and Chairman Tom Appio — who is also chief executive of the parent, Bausch Health — stepped in as interim CEO. Patrick Wood of UBS asked the only question that mattered: if the numbers are this good, why the change? The answer was a non-answer.
Brenton and the board mutually agreed on this leadership transition. As the company enters its next phase of growth. So I am not prepared to talk about anything that was that was more than that was in the press release and the 8-K filing.
That is the tension at the center of this report: a business whose financial engine is finally working, attached to a governance structure that cannot explain itself.
The margin machine is real — and ahead of schedule
Strip out the narrative and the arithmetic is emphatic. At Investor Day a year ago the plan was ~19% EBITDA margin for 2026 and ~23% by 2028. Guidance now implies 20.3% for the year — 130 basis points above the Investor Day target — and the third quarter alone printed 23.6%. CFO Osama Eldessouky was asked how much runway remains to the 2028 goal and deflected to next year's guidance, which is reasonable and also telling: the target is now a rounding exercise rather than an aspiration.
The drivers are mix and cost, not leverage of a fragile kind. Premium IOLs grew 75% and lifted surgical gross margin roughly 800 basis points even as equipment revenue fell 11% — a deliberate placement strategy that trades near-term capital sales for an installed base of higher-margin consumables. Miebo grew 42% to $119 million. LUMIFY grew 38%. Daily SiHy contact lenses grew 25%. The high-margin lines are precisely the ones compounding, which is why operating income swung to $83 million in the June quarter from a loss a year earlier, a trajectory the September quarter almost certainly extends.
Free cash flow has been the weak link historically, and CapEx is finally cooperating: $55 million in the quarter versus $91 million in the year-ago period. Eldessouky put the 3.5x leverage target in reach, and net debt near $4.8 billion is the reason the equity has gone nowhere since 2022 despite the operating progress.
What management stopped saying
The most informative part of this call is the silence. Three themes that dominated 2025 and early 2026 have simply evaporated.
Generics. In the year-ago call the generic business was a headline problem — a first-half disappointment, a new leader installed, promises of back-half improvement. On this call, the word generic does not appear once. There is no update, no all-clear, no acknowledgment. A segment that was a drag and a management priority has been reclassified into the memory hole.
PreserVision and the AREDS3 launch. In February, John Ferris called AREDS3 a multiyear opportunity with mid-single-digit potential and Brenton Saunders framed it as the fix for a category that had not innovated in thirteen years. This quarter the eye vitamin line is a single sentence: $95 million of revenue, no growth rate, no AREDS3 mention, no eye-care-professional penetration stat. The PreserVision keyword has been one of the sharpest decliners in this company's own keyword history. When a launch narrative disappears exactly at the point it should be scaling, that is a signal.
Xiidra. In the first quarter Xiidra grew 30% and Saunders told analysts “I do think low double-digit growth should be the new norm for the rest of the year” — Brenton L. Saunders, Chairman and Chief Executive Officer · 2026-04-29 — the benefit coming from walking away from an unfavorable CVS contract. This quarter it grew 2%. The gross-to-net reset has now annualized, and what is left is the underlying volume story, which is flat to down. The dry eye franchise is now a one-product growth story wearing a two-product costume.
Vision 27 is working; the next act is undefined
The strategic question the call could not answer is what happens after 2027. Vision 27 is roughly a third complete and tracking ahead — Appio said as much — but the plan terminates in margin expansion that has already largely been delivered. The pipeline is the answer offered: Project Halo, the bioactive contact lens that can run on existing lines with an attractive starting unit cost; tonabersat for pre-atrophic dry AMD, where an FDA meeting went well and a PK safety study begins early next year; ELIOS for MIGS, still awaiting FDA approval. All credible, all 2027-2028 events, all requiring capital that the balance sheet would rather direct at debt.
Which is why Douglas Miehm's question about whether Bausch + Lomb should simply be reabsorbed into its parent landed so awkwardly. Appio's answer was a recitation of operating priorities and the observation that good execution “is good for B and L shareholders” — Tom Appio, Chairman of the Board and Interim Chief Executive Officer · 2026-10-28 — a sentence that does not address the float, the dual-hatted CEO, or the parent's own deleveraging needs. The response to a structural question was an operational one.
One genuine cross-market echo: the quarter's gross margin carried a one-time tariff refund of about $14 million, or roughly 100 basis points. That is not a Bausch + Lomb story — it is the global Tariff Refund theme that swept through 2026's second and third quarters, surfacing at ACU, BOOM, VFC, LIGHT and VAIAS among others as the IEEPA refunds worked through. Ex-tariff, gross margin was 63.6%. Still excellent, but the 300-basis-point headline overstates the underlying run rate by a third.
The tape already voted
BLCO is up 34% in ninety trading days and 19% in the last five sessions — the market front-ran this print and then bought the guidance raise anyway. Yet the full-history line reads +2% since the May 2022 IPO: four years of round-trips. Price to revenue of 1.1x sits near the low end of its history. The market is paying for the debt, not the margin.
That is the crux. cash generation is finally real, the operating leverage is structural, and the plan is ahead of schedule. But the equity is levered to a deleveraging story that needs three more quarters like this one, run by an interim CEO with another full-time job, answering to a controlling shareholder whose own balance sheet determines when the float ever gets fixed. The numbers earned a re-rating. The governance has not yet earned the benefit of the doubt.