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ResMed (RMD) Q2 Earnings in Line, Revenues Miss Estimates

Zacks Equity Research

ResMed Inc. RMD announced second-quarter fiscal 2019 adjusted earnings per share (EPS) of $1, in line with the year-ago number. The adjusted earnings, however, beat the Zacks Consensus Estimate by 5.3%.

Including one-time items, ResMed delivered EPS of 86 cents in the quarter under review as compared to 7 cents a year ago.

A Closer View of the Top Line

Revenues in the reported quarter increased 8% year over year (up 9% at constant exchange rate or CER) to $651.1 million. The figure, however, missed the Zacks Consensus Estimate of $667 million.

On a geographic basis, excluding Software as a Service, revenues in the United States, Canada and Latin America totaled $358.5 million, reflecting a 9% increase over the prior-year period. Revenues from Software as a Service in the quarter under consideration summed $63.2 million, up 63% year over year. Revenues in the combined EMEA and APAC region were $229.4 million, highlighting a 1% rise at CER from the year-earlier tally.

ResMed Inc. Price, Consensus and EPS Surprise

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

Excluding the MatrixCare purchase accounting deferred revenue fair value adjustment, the adjusted gross margin for the fiscal second quarter was 59.1%, a 90-basis point expansion from the year-ago number.

Selling, general and administrative expenses were up 6.4% year over year to $161.6 million while Research and Development expenses increased 6.1% to $43.1 million. This in turn, induced a 6.4% rise in adjusted operating expenses, which amounted to $204.7 million. However, adjusted operating margin in the reported quarter rose 133 bps to 27.5%.

Financial Updates

ResMed exited second-quarter fiscal 2019 with cash and cash equivalents of $149.5 million compared with $230.2 million at the end of fiscal 2018.

Year to date, the company generated $177.6 million of cash flow from operations compared with the year-ago figure of $226.5 million.

Along with the earnings release of fiscal second quarter, ResMed approved a quarterly dividend of 37 cents per share, same as the previous payout. The dividend is payable Mar 14, 2018 to shareholders of record as of Feb 7, 2018.

Given its recent acquisitions including MatrixCare and Propeller Health, the company has suspended its share buyback program.

Outlook

Assuming current exchange rates and likely trends in product and geographic mix, ResMed expects its gross margin for the second half of fiscal 2019 to be broadly consistent with its year-ago gross margin.SG&A as a percentage of revenues is expected to be within 25% for the second half of the current fiscal year. Meanwhile, R&D expenses as a percentage of revenues is projected to be in the range of 7-8% for the second half of fiscal 2019.

Our Take

ResMed exited the second quarter of fiscal 2019 on a dull note with earnings matching the Zacks Consensus Estimate and revenues missing the mark. The company registered growth at CER across all geographical regions. However, in this quarter, device sales in France and Japan were impacted as customers completed their connected device upgrade programs.The company expects this impact to persist in the next few quarters.

Overall, the company achieved high-single-digit global revenue growth in the reported quarter, led by strong sales from Software-as-a-Service businesses as well as new mask products and devices. Within Software-as-a-Service, the company recorded steady growth in Brightree service offerings and incremental contribution from the buyouts of MatrixCare and HEALTHCAREfirst.

Zacks Rank & Key Picks

ResMed carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical space are BioTelemetry, Inc. BEAT, ABIOMED, Inc. ABMD and DexCom, Inc. DXCM.

BioTelemetry is expected to release fourth-quarter 2018 results on Feb 28. The Zacks Consensus Estimate for the period’s adjusted EPS is 42 cents and for revenues, $103.02 million. The stock sports a Zacks Rank #1 (Strong Buy).

ABIOMED is expected to release fourth-quarter fiscal 2018 results on Jan 31. The Zacks Consensus Estimate for the quarter’s adjusted EPS is pegged at 94 cents and for revenues stands at $214 million. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DexCom is slated to release fourth-quarter 2018 results on Jan 26. The Zacks Consensus Estimate for adjusted EPS in the to-be-reported quarter is 14 cents and for the top line, $330.5 million. The stock carries a Zacks Rank of 2.

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