ResMed (RMD) Q3 Earnings: Disappointment In The Cards?

ResMed Inc. (NYSE:RMD) is slated to report third-quarter fiscal 2017 results, after market close on Apr 27.

Last quarter, the company posted a positive earnings surprise of 4.29%. The four-quarter average earnings beat is 0.31%. Let's see how things are shaping up for this announcement.

Factors at Play

In the previously reported second quarter, ResMed’s masks segment saw 7% year-over-year decline in sales. The company has been particularly concerned about sluggish mask growth in the EMEA and APAC regions for quite some time now. Even though the AirFit F20 and AirFit N20 masks have been introduced in these regions, management expects the underperformance to continue in the third quarter of 2017 as well.

Meanwhile, the company generates a significant portion of its revenues from international sales. Therefore, currency headwinds continue to affect ResMed’s overseas sales.

Moreover, overall macroeconomic uncertainty is a major obstacle for growth. Thus, the company is cautiously handling its international operations.

Another factor which has been acting as a dampener for margins is its rising operating expenses. Management projects a further escalation in costs associated with product launches and legal expenses in the second half of 2017.

Also, the market for sleep-disordered breathing (SDB) products is highly competitive with respect to product price, features and reliability. Other challenges like competitive bidding and reimbursement pressure continue to hurt the stock.

On the bright side, ResMed continues to enjoy high demand for its SDB products. Recently, the company unveiled positive data related to its adaptive servo-ventilation (ASV) therapy’s ability to treat patients with sleep apnea. The company’s current endeavors to gain traction in the SDB market are expected to boost revenues.

ResMed is currently planning to expand its base in international markets. The company has seen growth in China buoyed by strong execution of integration plans and better team work. ResMed expects to maintain this bullish trend in the forthcoming quarters as well. Management is also currently focusing on consolidating its presence in Europe with respect to its life support ventilation and non-invasive ventilation solutions.

Earnings Whispers

Our proven model does not conclusively show that ResMed is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: ResMed has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 70 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: ResMed has a Zacks Rank #4 (Sell). Please note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may consider as our model shows that they have the right combination of elements to post an earnings beat in the upcoming quarter:

Galectin Therapautics, Inc. (NASDAQ:GALT) has an Earnings ESP of +13.33% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hill-Rom Holdings Inc (NYSE:HRC) has an Earnings ESP of +1.27% and a Zacks Rank #2.

Syros Pharmaceuticals, Inc. (NASDAQ:SYRS) has an Earnings ESP of +3.85% and a Zacks Rank #2.

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