ResMed (RMD) Q4 Earnings In Line, Revenues Top Estimates

ResMed Inc. (NYSE:RMD) announced fourth-quarter fiscal 2016 adjusted earnings per share (EPS) of 74 cents, up 8.8% from the prior-year quarter. Earnings came in line with the Zacks Consensus Estimate. Year-over-year bottom-line growth was primarily driven by a double-digit increase in revenues.

Including one-time items, ResMed reported EPS of 59 cents in the quarter, down 3.3% year over year.

For fiscal 2016, the company reported adjusted EPS of $2.68, up 4.3% from the year-ago level. Fiscal 2016 earnings also beat the Zacks Consensus Estimate by a penny.

Moreover, during the fourth quarter, ResMed adopted ASU 2016-09 "Improvements to Employee Share-Based Payment Accounting", which enabled the company to enjoy additional income tax benefits of $1.3 million in fiscal 2016 and $11.2 million in the fourth quarter. However, the benefits associated with the adoption of the standard was largely offset by an additional tax expense incurred in the fourth quarter related to an increase in the company’s foreign cash repatriation to the U.S.

Revenue in Details

Revenues in the reported quarter increased 14% year over year (up 15% at constant exchange rate or CER) to $518.6 million and comfortably outpaced the Zacks Consensus Estimate of $508 million. Excluding the contribution from the Brightree acquisition, second-quarter revenues improved 8% to $489.7 million.

On a geographic basis, revenues in the Americas rose 19% year over year to $324.5 million, which included contributions of $28.9 million from the Brightree acquisition. Excluding the same, revenues in the Americas were up 8% to $295.6 million. On the other hand, sales in the combined EMEA and APAC region improved 8% at CER to $194.1 million.

In fiscal 2016, the company generated revenues of $1.84 billion, exhibiting a year-over-year improvement of 10% (up 13% at CER). Reported revenues also breezed past the Zacks Consensus Estimate of $1.83 billion.

RESMED INC Price, Consensus and EPS Surprise

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

Operational Update

ResMed's gross margin was 58.1% in the reported quarter, reflecting an 80 basis point (bps) yea-over-year expansion, on account of manufacturing and procurement efficiencies, and an incremental contribution from the Brightree acquisition, which offset changes in product mix and declines in average selling prices.

Selling, general and administration (SG&A) expenses rose 9% (up 10% at CER) to $133.9 million, while research and development (R&D) expenses increased 21% (up 24% at CER) to $34.4 million.

Adjusted income from operations (excluding the impact of amortization and acquisition expenses) improved 23.7% year over year to $133.2 million on the back of higher gross margin. Consequently, the company witnessed an expansion of 190 bps in its fourth-quarter adjusted operating margin of 24.8%.

Financial Update

ResMed exited fiscal 2016 with cash and cash equivalents of $731.4 million compared with $717.2 million at the end of fiscal 2015.

At the end of fiscal 2016, the company generated $547.9 million of cash flow from operations, up 43% from the year-ago figure, displaying strong underlying earnings and an improvement in net working capital balances.

Concurrent to its fourth-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 Sep 22 to shareholders of record as on Aug 18.

During the reported quarter, ResMed did not repurchase any shares, in line with its decision of a temporary suspension of the share repurchase program due to the company’s recent acquisition. At the end of Mar 2016, the company had approximately 13.6 million shares remaining under its authorized share repurchase program.

Our Take

ResMed ended fiscal 2016 on a modest note, with fourth-quarter revenues beating estimates and earnings meeting the same. The Brightree acquisition drove top-line growth in the U.S. The company’s strong cash balance and 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 holds a Zacks Rank #3 (Hold). Some better-ranked medical stocks are Abiomed, Inc. (NASDAQ:ABMD) , Masimo Corporation (NASDAQ:MASI) and Natus Medical Inc. (NASDAQ:BABY) . All these stocks sport a Zacks Rank #1 (Strong Buy).