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Encouraging 4Q for ResMed

Zacks Equity Research

ResMed Inc. (RMD) reported EPS of 53 cents in the fourth quarter of fiscal 2012, comfortably beating the Zacks Consensus Estimate of 48 cents and also the year-ago EPS by 43%.

Apart from increased sales and higher margin, a 6.8% fall in shares outstanding contributed to the bottom-line improvement. However, the fiscal 2012 EPS of $1.71 missed the Zacks Consensus Estimate by a penny and was up 19%.

Revenues increased 9% year over year (up 13% at constant exchange rates or CER) to $371.9 million, but missed the Zacks Consensus Estimate of $373 million. For the full year, revenues came in at $1.37 billion, in line with the Zacks Consensus Estimate and up 10% (11% at CER).

Based on a favorable product mix and vastly under-penetrated and growing sleep-disorder breathing market, during the fourth quarter of 2012, revenues in Americas and outside Americas increased 13% year over year to $207.4 million and 3% (13% at CER) to $164.5 million, respectively. Strong year-over-year growth in flow generator and mask categories contributed to the growth.  

The company reported domestic flow generator sales were $90.2 million in the quarter, up 9% year over year due to growth in the home sleep testing market and a shift from basic Continuous Positive Airway Pressure (:CPAP) to Automatic Positive Airway Pressure (:APAP) systems. Masks and other sales were $117.2 million, up 17% year over year driven by strong contributions across mask product range and continued growth in accessories.

Gross profit climbed 13.9% to $226.5 million leading to 270 basis points (bps) expansion in gross margin to 60.9%. Selling, general and administrative and research and development expenses during the quarter were up 3% (9% at CER) to $105.9 million and up 3% (10%) to $27.9 million respectively favorably impacted by appreciating US dollar. Despite, operating margin increased 460 bps to 24.9% during the quarter.

ResMed exited the fiscal with cash and cash equivalents of $809.5 million compared with $735.3 million at the end of fiscal 2011. Cash flow generated from operations was $97 million during the fourth quarter.

ResMed repurchased 2.8 million shares for $89 million during the quarter (13.6 million shares for $391.2 million in the fiscal) and was left with authorization to repurchase 8.8 million shares. Moreover, the Board of Directors also declared a quarterly dividend of 17 cents per share, payable on September 28, 2012.

Even amidst the challenging macroeconomic scenario in Europe, we are encouraged with ResMed’s overall improved top and bottom-line performances during the fourth quarter and fiscal 2012. Presently, ResMed is emphasizing on building strategic relationships in order to penetrate further in the domestic and international arena that includes the 5-year exclusive distribution agreement with CareFusion (CFN).

Currently ResMed retains a short-term Zacks #3 (Hold Rank).

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