ResMed (RMD) Q1 Earnings & Sales Beat on Overall Growth

ResMed Inc. RMD announced first-quarter fiscal 2019 adjusted earnings per share (EPS) of 81 cents, up 22.7% from the prior-year quarter. Earnings beat the Zacks Consensus Estimate by a penny.

Including one-time items, ResMed reported EPS of 73 cents in the quarter, up 21.7% year over year.

A Closer View of the Top Line

Revenues in the reported quarter increased 12.3% year over year (up 13% at constant exchange rate or CER) to $588.3 million. The figure also beat the Zacks Consensus Estimate by 2%.

On a geographic basis, excluding Software as a Service, revenues in the United States, Canada and Latin America totaled $326.4 million, reflecting a 10% increase over the prior-year quarter. Revenues from Software as a Service in the quarter totaled $47.5 million, up 25% year over year. Revenues in the combined EMEA and APAC region were $214.4 million, highlighting a 16% rise at CER from a year ago.

Adjusted gross margin contracted 10 basis points (bps) year over year to 58.3% in the reported quarter. Fall in average selling prices led to gross margin contraction, which was however, partially offset by procurement and production efficiencies.

ResMed Inc. Price, Consensus and EPS Surprise

 

ResMed Inc. Price, Consensus and EPS Surprise | ResMed Inc. Quote

Selling, general and administrative expenses were up 2.4% year over year to $147.3 million, while there was a 3.7% increase in Research and Development expenses to $38.8 million. This led to a 2.7% rise in adjusted operating expenses, which amounted to $186.1 million. However, adjusted operating margin in the quarter rose 290 bps to 26.7%.

Financial Updates

ResMed exited first-quarter fiscal 2018 with cash and cash equivalents of $230.2 million, compared with $188.7 million at the end of fiscal 2018.

The company generated $48.1 million of cash flow from operations in first-quarter fiscal 2018, compared to the year-ago figure of $94 million.

Along with the first-quarter earnings release, ResMed announced a quarterly dividend of 37 cents per share, same as the prior payout. The dividend will be paid on Dec 13, 2018, to shareholders of record as on Nov 8, 2018.

As part of the company’s capital management plan, ResMed repurchased 200,000 shares for $22.8 million in the fiscal first quarter.

Guidance

Management expects SG&A expenses of around 24-25%, as a percentage of revenues, for fiscal 2019. R&D expenses, as a percentage of revenues, are projected in the band of 6-7% for fiscal 2019. This reflects marketing expenses associated with product launches along with ongoing legal expenses.

Our Take

ResMed started fiscal 2019 on a promising note. The company achieved double-digit global revenue growth in the quarter, led by sales from Software-as-a-Service businesses as well as new mask products and devices. The company also delivered impressive performance across all geographical regions. ResMed introduced key upgrades to its Astral life support ventilator as well.

Further, under the mask and accessories business, ResMed continues to see strong adoption of AirFit F20 full face mask and AirFit N20 nasal mask products across all regions. Expanding its masks product suite, ResMed introduced its first minimal-contact full face CPAP mask — AirFit F30.

Moreover, the company announced collaboration with Verily, an Alphabet company, in the quarter. Per ResMed, the joint venture will develop software solutions that allow healthcare providers to discover, diagnose, treat and manage individuals with sleep apnea and other breathing related sleep conditions more efficiently.

Also, the company seems to be upbeat about completing the HEALTHCAREfirst buyout which is expected to broaden ResMed’s Software-as-a-Service line. All these factors boost investor faith in the stock.

However, the company is exposed to foreign exchange fluctuations.

Zacks Rank & Key Picks

ResMed carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical space are Amedisys, Inc. AMED, Baxter International Inc BAX and Masimo Corporation MASI.

Amedisys is expected to release third-quarter 2018 results on Oct 29. The Zacks Consensus Estimate for adjusted EPS is 79 cents and for revenues is $410.2 million. The stock carries a Zacks Rank of 1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Baxter is expected to release third-quarter 2018 results on Oct 31. The Zacks Consensus Estimate for EPS is pegged at 74 cents and for revenues at $2.79 billion. The stock has a Zacks Rank #2 (Buy).

Masimo is slated to release third-quarter 2018 results on Oct 31. The Zacks Consensus Estimate for EPS is pinned at 68 cents and for revenues at $206.3 million. The company is a Zacks #2 Ranked player.

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