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ResMed's (RMD) Q3 Earnings Beat Estimates, Revenues in Line

Zacks Equity Research

ResMed Inc. RMD announced third-quarter fiscal 2019 adjusted earnings per share (EPS) of 89 cents, reflecting a 3.3% decline from the year-ago number. The metric, however, beat the Zacks Consensus Estimate by 5.9%.

Including one-time items, ResMed delivered EPS of 73 cents in the quarter under review as compared to 76 cents a year ago.

Revenues in the reported quarter increased 11.9% year over year (up 15% at constant exchange rate or CER) to $662.2 million. The figure came in line with the Zacks Consensus Estimate.

A Closer View of the Top Line

Geographically, excluding Software as a Service, revenues in the United States, Canada and Latin America totaled $350 million, mirroring a 10% increase over the prior-year period. Revenues from Software as a Service in the quarter under consideration summed $79.9 million, representing a 101% jump year over year. Revenues in the combined EMEA and APAC region were $232.3 million, highlighting a 6% 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

Gross margin for the fiscal third quarter was 59.2%, translating to a 100-basis point expansion from the year-ago number.

Selling, general and administrative expenses were up 6.411% year over year to $164.5 million while Research and Development expenses increased 27% to $47.6 million. This, in turn, induced a 14.5% rise in adjusted operating expenses, which amounted to $212.1 million. However, adjusted operating margin in the reported quarter rose 27 bps to 27.1%.

Financial Updates

ResMed exited third-quarter fiscal 2019 with cash and cash equivalents of $146.5 million compared with $149.5 million at the end of the second quarter.

Year to date, the company generated $317.2 million of cash flow from operations compared with the year-ago figure of $375.6 million.

Along with the earnings release of the fiscal third quarter, ResMed announced its regular quarterly dividend of 37 cents per share.

Outlook

In its latest earnings report, the company did not mention its fiscal guidance.

However, the company earlier stated that it 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 in the 7-8% range for the second half of fiscal 2019.

Our Take

ResMed exited the third quarter of fiscal 2019 on a mixed note with earnings exceeding the Zacks Consensus Estimate and revenues matching the mark. A year-over-year decline in adjusted earnings in the reported quarter was disappointing.

On a positive note, the company registered growth at CER across all geographies. Mask sales were strong in these markets. However, in this quarter, device sales in France and Japan were impacted as customers completed their connected device upgrade programs.

Overall, the company achieved double-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 a steady uptick 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). Some better-ranked stocks flaunting solid results this earnings season are Stryker Corporation SYK, Abbott Laboratories ABT and CONMED Corporation CNMD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered first-quarter 2019 adjusted EPS of $1.88, beating the Zacks Consensus Estimate by 2.2%. Meanwhile, revenues of $3.52 billion met the Zacks Consensus Estimate.

Abbott reported first-quarter 2019 adjusted EPS of 63 cents, topping the Zacks Consensus Estimate by 3.3%. Further, first-quarter worldwide sales came in at $7.54 billion, above the consensus estimate of $7.47 billion.

CONMED posted first-quarter 2019 adjusted EPS of 57 cents, exceeding the Zacks Consensus Estimate of 54 cents. Revenues also summed $218.4 million, outshining the consensus mark of $213 million.

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