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ResMed (RMD) Q2 Earnings Surpass Estimates, Margins Down

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·5 min read
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ResMed Inc.’s RMD adjusted earnings per share (EPS) in the fourth quarter of fiscal 2021 were $1.35, up 1.5% year over year. The metric also beat the Zacks Consensus Estimate by 8%.

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 fourth quarter.

Full-year adjusted EPS was $5.33, up 11.9%. The metric surpassed the Zacks Consensus Estimate by 0.6%.

GAAP EPS in the reported quarter was $1.33, up 9% from the year-ago EPS of $1.22.

Revenues

Fiscal fourth-quarter revenues on a reported basis increased 13.7% year over year (up 10% at constant exchange rate or CER) to $876.1 million. The figure also surpassed the Zacks Consensus Estimate by 12.2%.

In fiscal 2021, revenues improved 8.1% to $3.19 billion. The metric surpassed the Zacks Consensus Estimate by 2.6%.

A Closer View of Q4 Top Line

Total Sleep and Respiratory Care revenues in the United States, Canada and Latin America improved 18% from the prior-year period to $472.3 million. Software as a Service (SaaS) revenues grew 5% to $95.8 million.

Total Sleep and Respiratory Care revenues in combined Europe, Asia and other markets rose 11% on a reported basis and 2% at CER to $308 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

Global revenues from total Sleep and Respiratory Care in the quarter under review were $780.3 million, up 15% on a reported basis and 11% at CER.

Overall increase in revenues primarily resulted from higher demand for sleep devices and masks, including recovery of core sleep patient flow along with increased demand following a 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 8.8% to $501.8 million despite a 21.2% uptick in cost of sales (excluding expenses related to amortization of acquired intangibles and restructuring).

Adjusted gross margin for the fiscal fourth quarter was 57.3%, reflecting a 262-basis point (bps) contraction from the year-ago number mainly due to unfavorable product mix, specifically a proportional increase in lower-margin sleep devices, lower average selling prices, and unfavorable foreign currency movements.

Selling, general and administrative expenses rose 9.7% year over year to $181.5 million (up 4% at CER). Research and development expenses increased 14% to $59.9 million.

Adjusted operating income was $260.4 million in the quarter under discussion, up 6.9% from the year-ago quarter. Adjusted operating margin contracted 188 bps year over year to 29.7%.

Financial Updates

ResMed exited fiscal 2021 with cash and cash equivalents of $295.3 million compared with $463.2 million at the end of fiscal 2021. Total debt (short and long-term) at the end of fiscal 2021 was $655.4 million compared with $1.12 billion a year ago.

Cumulative net cash flow from operating activities at the end of the fiscal 2021 was $736.7 million compared with $802.3 million a year ago.

The company paid out $226.7 million as dividends during the fiscal fourth quarter.

Our Take

ResMed exited fourth-quarter fiscal 2021 with better-than-expected earnings and revenues. The increasing adoption of digital health solutions and other tools to aid remote care amid the pandemic look encouraging. In the reported quarter, the company witnessed improved demand for the sleep devices and masks, including recovery of core sleep patient flow along with increased demand following a 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.

Lower device sales along with decreased demand for ventilators due to COVID-19 and lack of any incremental revenues from COVID-related demand in the reported quarter adversely impacted revenues of the total Sleep and Respiratory Care business across geographies. Escalating expenses and contraction of operating margin and gross margin also do not bode well for the company.

Zacks Rank and Other Key Picks

The company currently carries a Zacks Rank #2 (Buy).

A few other similar-ranked stocks in the broader medical space that have announced their quarterly results are West Pharmaceutical Services, Inc. WST, Encompass Health Corporation EHC and Henry Schein, Inc. HSIC, each carrying a Zacks Rank #2.

West Pharmaceutical reported second-quarter 2021 adjusted EPS of $2.46, which surpassed the Zacks Consensus Estimate by 41.4%. Revenues of $723.6 million outpaced the Zacks Consensus Estimate by 8.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Encompass Health reported second-quarter 2021 adjusted EPS of $1.17, which beat the Zacks Consensus Estimate by 15.8%. Revenues of $1.3 billion outpaced the consensus mark by 1.5%.

Henry Schein reported second-quarter 2021 adjusted EPS of $1.11, surpassing the Zacks Consensus Estimate by 16.8%. Revenues of $2.97 billion surpassed the Zacks Consensus Estimate by 2.7%.


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ResMed Inc. (RMD) : Free Stock Analysis Report

Henry Schein, Inc. (HSIC) : Free Stock Analysis Report

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