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ResMed (RMD) Misses Earnings & Revenue Estimates In Q1

Published 10/25/2016, 10:40 PM
Updated 07/09/2023, 06:31 AM

ResMed Inc. (NYSE:RMD) announced first-quarter fiscal 2017 adjusted earnings per share (EPS) of 62 cents, up 5.1% from the prior-year quarter. However, the quarter’s earnings missed the Zacks Consensus Estimate by a penny.

Including one-time items, ResMed reported EPS of 54 cents in the quarter, down 6.9% year over year.

Revenue in Details

Revenues in the reported quarter increased 13% year over year (same at constant exchange rate or CER) to $465.5 million. However, it missed the Zacks Consensus Estimate of $470 million. Excluding the contribution from the Brightree acquisition, first-quarter revenues improved 5% to $432.4 million.

RESMED INC Price, Consensus and EPS Surprise

RESMED INC Price, Consensus and EPS Surprise | RESMED INC Quote

On a geographic basis, revenues in the Americas rose 18% year over year to $301.0 million, which included contributions of $33.1 million from Brightree. Excluding the same, revenues in the Americas were up 5% to $267.9 million. On the other hand, sales in the combined EMEA and APAC region improved 5% at CER to $164.6 million.

Adjusted gross margin has expanded 96 basis points (bps) year over year to 58.9% in the reported quarter. Selling, general and administrative expenses were up 15.9% year over year to $128.8 million, while there was a 27% increase in Research and Development expenses to $34.4 million. This led to an 18.1% rise in adjusted operating expenses, which amounted to $163.2 million. Accordingly, adjusted operating margin in the quarter contracted 53 bps to 23.8%.

Financial Update

ResMed exited first-quarter 2017 with cash and cash equivalents of $731.4 million compared with $731.4 million in fiscal 2016.

At the end of the quarter under quarter, the company generated $86.2 million of cash flow from operations, down 30.7% from the year-ago figure, displaying weak underlying earnings and a decline in net working capital balances.

Concurrent to its first-quarter earnings release, ResMed announced a quarterly dividend of 33 cents per share, representing a 10% increase from the company’s prior payout. The dividend will be paid on Dec 15 to shareholders of record as on Nov 10.

During the reported quarter, ResMed did not repurchase any shares, in sync with its decision of a temporary suspension of the share repurchase program due to the company’s recent acquisition.

Guidance

For fiscal 2017, the company narrowed its guidance and expects gross margins to be in the range of 58% to 60%, assuming current exchange rates and likely trends in product and geographic mix.

Our Take

We are disappointed with ResMed’s fiscal first-quarter numbers which missed the Zacks Consensus Estimate in terms of both earnings and revenues. However, on a year-over-year basis, 13% constant currency revenue growth driven by its Brightree software offerings and global device sales, buoys optimism.

During the quarter, the company drove consumer sleep awareness through a new U.S. media partnership, and sponsored a favorable clinical study showing that non-invasive ventilation significantly reduces the risk of re-hospitalization. The recently announced hike in dividend payment further boosts confidence in the stock.

However, challenges like fluctuating foreign currency, competitive bidding and reimbursement issues continue to plague the stock.

Zacks Rank & Key Picks

ResMed currently carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are GW Pharmaceuticals plc (NASDAQ:GWPH) , Quidel Corp. (NASDAQ:QDEL) and Boston Scientific Corporation (NYSE:BSX) . GW Pharmaceuticals sports a Zacks Rank #1 (Strong Buy), while Quidel and Boston Scientific carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals surged 70.3% year to date compared to the S&P 500’s 4.9% over the same period. The company’s four-quarter average earnings surprise is pegged at 41.6%

Quidel rallied 24% in the past one year, higher than the S&P 500’s 3.7%. Over the next five years, the stock is estimated to record earnings growth of 20%, higher than the industry average of 14.8%.

Boston Scientific gained 33.4% in the past one year, higher than the S&P 500’s 3.7%. The company has a trailing four-quarter positive average earnings surprise of 6.26%

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