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ResMed (RMD) Q1 Earnings Top on Growth in All Business Lines

Zacks Equity Research
Updated
NantHealth, Inc. (NH) delivered earnings and revenue surprises of 23.08% and -10.83%, respectively, for the quarter ended September 2018. Do the numbers hold clues to what lies ahead for the stock?

ResMed Inc. RMD announced first-quarter fiscal 2018 adjusted earnings per share (EPS) of 66 cents, up 6.5% from the prior-year quarter. Earnings also beat the Zacks Consensus Estimate by a penny.

Including one-time items, ResMed reported EPS of 60 cents in the quarter, up 11.1% year over year.

Revenues in Details

Revenues in the reported quarter increased 12.5% year over year (up 11% at constant exchange rate or CER) to $523.7 million. The figure also beat the Zacks Consensus Estimate of $501 million.

On a geographic basis, excluding Brightree, revenues in the Americas totaled $296.6 million, reflecting an 11% increase over the prior-year quarter. Moreover, revenues from Brightree in the reported quarter totaled $38.1 million, up 15% year over year. Revenues in combined EMEA and APAC were $189 million, highlighting an 11% year over year rise at CER.

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Adjusted gross margin contracted 56 basis points (bps) year over year to 58.4% in the reported quarter. Selling, general and administrative expenses were up 11.6% year over year to $143.8 million, while there was an 8.6% increase in Research and Development expenses to $37.4 million. This led to an 11% rise in adjusted operating expenses, which amounted to $181.2 million. Accordingly, adjusted operating margin in the quarter contracted 9 bps to 23.7%.

Financial Update

ResMed exited first-quarter fiscal 2018 with cash and cash equivalents of $811.1 million, compared with $821.9 million at the end of fiscal 2017.

Year to date, the company generated $93.9 million of cash flow from operations, up from the year-ago figure of $86.2 million.

Concurrent to its first-quarter earnings release, ResMed announced a regular quarterly dividend of 35 cents per share. The dividend will be paid on Dec 14, to shareholders of record as on Nov 9.

As previously declared, ResMed temporarily suspended its share repurchase program due to the recent acquisitions. However, the company still expects to recommence the buy-back program sometime in fiscal 2018.

Guidance

Management expects SG&A expenses, as a percentage of revenues, at around 26% at the end of fiscal 2018. R&D expenses, as a percentage of revenues, are projected at 7% for fiscal 2018. This reflects marketing expenses associated with product launches along with the ongoing legal expenses.

Our Take

ResMed exited the first quarter on a promising note. On the brighter side, the company achieved solid double-digit global revenue growth this quarter, led by sales from Software-as-a-Service businesses as well as its new mask products and devices. The company also recently launched the AirFit N20 Classic nasal mask for positive airway pressure (PAP) treatment in Europe. All these factors boost investor faith in the stock.

However, challenges like competitive bidding and reimbursement issues continue to plague the stock. The company also remains exposed to foreign exchange fluctuations.

Zacks Rank & Key Picks

ResMed currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Abbott ABT and Intuitive Surgical, Inc. ISRG. Notably, PetMed sports a Zacks Rank #1 (Strong Buy), while Abbott and Intuitive Surgical carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported EPS of 43 cents in the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Abbott reported third-quarter 2017 adjusted earnings from continuing operations of 66 cents per share, up 11.9% year over year. Also, third-quarter worldwide sales came in at $6.83 billion, up 28.8% year over year. 

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% on a year-over-year basis. Also, revenues increased 18% year over year to $806.1 million.

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