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ResMed (RMD) Q1 Earnings Top Estimates, Margins Decline

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ResMed Inc.’s RMD adjusted earnings per share (EPS) in the first quarter of fiscal 2022 were $1.51, up 18.9% year over year. The metric also beat the Zacks Consensus Estimate by 11.9%.

The adjustments include certain non-recurring expenses/benefits like amortization of acquired intangibles, and restructuring costs and expenses, among others.

The ongoing recovery of core patient flow across the company’s business and provision of digital health solutions and other tools to customers aiding remote care amid the pandemic boosted ResMed’s bottom line during the fiscal first quarter.

GAAP EPS in the reported quarter was $1.39, up 13.9% from the year-ago EPS of $1.22.

Revenues

Fiscal first-quarter revenues on a reported basis increased 20.2% year over year (up 10% at constant exchange rate or CER) to $904 million. The figure also surpassed the Zacks Consensus Estimate by 5.1%.

A Closer View of Q1 Top Line

Total Sleep and Respiratory Care revenues in the United States, Canada and Latin America improved 21.8% from the prior-year period to $491 million. Software as a Service (SaaS) revenues grew 5.9% to $97.5 million.

ResMed Inc. Price, Consensus and EPS Surprise

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

ResMed Inc. price-consensus-eps-surprise-chart | ResMed Inc. Quote

Total Sleep and Respiratory Care revenues in combined Europe, Asia and other markets rose 23% on a reported basis and 21% at CER to $315.5 million.

Global revenues from total Sleep and Respiratory Care in the quarter under review were $806.5 million, up 22.2% on a reported basis and 21% at CER.

The revenue growth in the quarter resulted from increased demand for ResMed’s sleep and respiratory care devices on both sleep patient flow recovering from the COVID- impacted lower levels in the prior-year quarter as well as from greater demand in response to the recent product recall by one of ResMed’s competitors. The uptick in SaaS revenues was driven by continued growth in resupply service offerings and stabilizing patient flow in out-of-hospital care settings.

Margins

Adjusted gross profit in the quarter under review rose 14.8% to $517.3 million despite a 28.3% uptick in cost of sales (excluding expenses related to amortization of acquired intangibles and restructuring).

Adjusted gross margin for the fiscal first quarter was 57.2%, reflecting a 270-basis point (bps) contraction, primarily owing to higher manufacturing costs, incremental freight costs and lower average selling prices.

Selling, general and administrative expenses rose 11.2% year over year to $176.7 million (up 10% at CER) predominantly on employee-related expenses. Research and development expenses increased 9.9% to $59.9 million.

Adjusted operating income was $280.7 million in the quarter under discussion, up 18.4% from the year-ago quarter. Adjusted operating margin contracted 49 bps year over year to 31%.

Financial Updates

ResMed exited the first quarter of fiscal 2022 with cash and cash equivalents of $276.1 million compared with $295.3 million at the end of fiscal 2021. Total debt (short and long-term) at the end of the fiscal first quarter was $805.7 million compared with $1.06 billion a year ago.

Cumulative net cash used in operating activities at the end of the fiscal first quarter was $65.7 million, compared with cumulative net cash inflow of $143.9 million in the year-ago quarter.

The company paid out $61.2 million as dividends during the fiscal first quarter.

Our Take

ResMed reported better-than-expected earnings and revenues in the first quarter of fiscal 2022. The company saw higher demand for sleep devices and masks in the reported quarter on an ongoing rebound in core sleep patient flow as well as increased demand following a recent product recall by one of its rivals. Continued growth in resupply service offerings and stabilizing patient flow in out-of-hospital care settings fueled revenue growth in the SaaS business.

However, negative cash flow from operating activities as a result of a $285-million payment to the Australian Taxation Office in connection with the deed of settlement appears to be discouraging. Escalating operating expenses and contraction of both margins do not bode well for the company either.

Zacks Rank and Key Picks

ResMed currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Thermo Fisher Scientific Inc. TMO, West Pharmaceutical Services, Inc. WST and SARTORIUS SARTF.

Thermo Fisher, carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted EPS of $5.76, which beat the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the consensus mark by 12%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

West Pharmaceutical reported third-quarter 2021 adjusted EPS of $2.06, which surpassed the Zacks Consensus Estimate by 13.2%. Third-quarter revenues of $706.5 million outpaced the Zacks Consensus Estimate by 3.2%. It currently carries a Zacks Rank #2.

SARTORIUS reported third-quarter 2021 adjusted EPS of $2.55, surpassing the Zacks Consensus Estimate by 7.6%. Revenues of $1.06 billion surpassed the Zacks Consensus Estimate by 5.2%. It currently carries a Zacks Rank #2.


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