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Why Is ResMed (RMD) Down 10.7% Since Last Earnings Report?

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Zacks Equity Research
·4 min read
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A month has gone by since the last earnings report for ResMed (RMD). Shares have lost about 10.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ResMed due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

ResMed Q2 Earnings Surpass Estimates, Margins Rise

ResMed announced strong second-quarter fiscal 2021 results, wherein adjusted earnings per share came in at $1.41, up 16.5% year over year. The metric also beat the Zacks Consensus Estimate by 15.6%.

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

Improvement 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 bottom line during the fiscal second quarter.

GAAP earnings per share of $1.23 improved 11.8% year over year.

Revenues

Fiscal second-quarter revenues, on a reported basis, increased 8.7% year over year (up 7% at CER) to $800 million. The figure beat the Zacks Consensus Estimate by 3.6%.

A Closer View of Q2 Top Line

Excluding SaaS, total Sleep and Respiratory Care, revenues in the United States, Canada and Latin America improved 4.6% from the prior-year period to $426.8 million. SaaS revenues grew 6% reportedly to $91.8 million.

Total Sleep and Respiratory Care revenues in combined Europe, Asia, and other markets grew 17% on a reported basis and 10% at CER to $281.4 million.

Global revenues from total Sleep and Respiratory Care in the quarter under review were $708.2 million, up 9% at reported basis and 7% 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 9% to $478.9 million despite an 8.1% uptick in cost of sales (excluding expenses related to amortization of acquired intangibles and restructuring).

Adjusted gross margin for the fiscal second quarter was 59.9%, reflecting a 20-basis point (bps) expansion from the year-ago number on benefits from favorable product mix and foreign exchange movements, partially offset by declines in average selling prices.

Selling, general and administrative expenses were down 1.1% year over year to $169.5 million (unchanged at CER). Research and development expenses increased 10% to $54.9 million.

Adjusted operating income was $254.5 million in the quarter under discussion, up 16.8% from the year-ago quarter. Adjusted operating margin expanded 222 bps year over year to 31.8%.

Financial Updates

ResMed exited the second quarter of fiscal 2021 with cash and cash equivalents of $255.9 million compared with $421.4 million at the end of the first quarter of fiscal 2021. Total debt (short and long-term) at the end of fiscal 2020 was $825.7million compared with $1.06 billion at the end of the first quarter of fiscal 2021.

Cash flow from operating activities at the end of the second quarter was $313.9 million compared with $232.3 million a year ago.

The company paid out $113.2 million as dividends during the fiscal second quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, ResMed has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ResMed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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