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ResMed (RMD) Q4 Earnings & Revenues Top Estimates, Margins Up

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Zacks Equity Research
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ResMed Inc. RMD announced strong fourth-quarter fiscal 2020 results, wherein adjusted earnings per share (EPS) came in at $1.33, up 40% year over year. The metric also beat the Zacks Consensus Estimate by 37.1%.

Full-year adjusted EPS was $4.76, reflecting a 30.8% increase from the year-earlier $3.64. The metric surpassed the Zacks Consensus Estimate by 6.5%.

Increase in demand for the company’s ventilators and ventilation mask systems and provision of digital health solutions and other tools to customers aiding remote care amid the pandemic boosted ResMed’s sales during the fiscal fourth quarter.

Revenues

Fiscal fourth-quarter revenues, on a reported basis, increased 9.3% year over year (up 10% at constant exchange rate or CER) to $770.3 million. The figure beat the Zacks Consensus Estimate by 8.4%.

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

Full-year revenues were $2.96 billion, reflecting a 13.4% increase from the year-ago period (up 15% at CER). Revenues surpassed the Zacks Consensus Estimate by 1.4%.

A Closer View of Q4 Top Line

Excluding Software-as-a-Service (SaaS), total Sleep and Respiratory Care, revenues in the United States, Canada and Latin America improved 3.9% from the prior-year period to $400.5 million. SaaS revenues grew 7.4% reportedly and 7% at CER to $91.5 million.

Total Sleep and Respiratory Care revenues in combined Europe, Asia, and other markets grew 18.8% on a reported basis and 22% at CER to $278.3 million.

Global revenues from total Sleep and Respiratory Care in the quarter under review were $678.9 million, up 9.5% at reported basis and 11% at CER.

Overall increase in revenues was driven by robust performance of its mask and device product portfolios on increased demand for ventilators and ventilator masks.

Margins

Adjusted gross profit in the quarter under review rose 10.4% to $461.4 million despite a 7.6% uptick in cost of sales (excluding expenses related to amortization of acquired intangibles).

Adjusted gross margin for the fiscal fourth quarter was 59.9%, reflecting a 62-basis point (bps) expansion from the year-ago number on benefits from changes in product mix, partially offset by declines in manufacturing and procurement efficiencies driven by higher air freight costs.

Selling, general and administrative expenses were down 3.6% year over year to $165.4 million (unchanged at CER). Research and development expenses increased 2.7% to $52.5 million.

Adjusted operating income was $243.4 million in the quarter under discussion, up 24.8% from $195.1 million in the year-ago quarter. Adjusted operating margin expanded 393 bps year over year to 31.6%.

Financial Updates

ResMed exited the fiscal 2020 with cash and cash equivalents of $463.2 million compared with $147.1 million at the end of the fiscal 2019. Total debt (short and long-term) at the end of fiscal 2020 was $1.18 billion, marking a reduction of 7.5% from $1.27 billion at the end of fiscal 2019.

Cumulative cash flow from operating activities was $802.3 million at the end of fiscal 2020 compared with $459.1 million a year ago.

The company paid out $56.5 million as dividends during the fiscal fourth quarter. Along with the earnings release, ResMed announced a regular quarterly dividend payout of 39 cents per share.

Our Take

ResMed delivered solid fourth-quarter fiscal 2020 results, with earnings and revenues beating the Zacks Consensus Estimate. It is encouraging to note that ResMed registered growth at CER across both its key operating segments — Total Sleep and Respiratory Care and SaaS. The reopening of sleep labs and physician practices across many geographies and robust adoption of digital health solutions look encouraging. Expansion of both margins buoys optimism.

Ventilators and mask sales were particularly strong on ramped up production and sales of the same amid the pandemic. In this regard, ResMed produced more than 52,000 non-invasive ventilators, including bilevels and invasive ventilators, during the quarter. This marked a three-fold increase in production from the year-ago period. Further, the launch of MaskSelector, a digital tool for remote patient mask selection and sizing, is aimed at enabling patients receive remote care. All these activities instill investors’ confidence in the stock.

On the flip side, the fall in manufacturing and procurement efficiencies is discouraging. The decline in masks and other sales in combined Europe, Asia and other markets does not bode well as well.

Zacks Rank and Other Key Picks

ResMed currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Hologic, Inc. HOLX.

West Pharmaceutical reported second-quarter 2020 adjusted EPS of $1.25, beating the Zacks Consensus Estimate by 37.4%. Net revenues of $527.2 million outpaced the consensus estimate by 6.9%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher, a Zacks Rank #2 company, reported second-quarter 2020 adjusted EPS of $3.89, beating the Zacks Consensus Estimate by 45.7%. Revenues of $6.92 billion outpaced the consensus mark by 0.1%.

Hologic reported third-quarter fiscal 2020 adjusted EPS of 75 cents, surpassing the Zacks Consensus Estimate by a stupendous 108.3%. Net revenues of $822.9 million exceeded the Zacks Consensus Estimate by 37.1%. It currently sports a Zacks Rank #1.

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