ResMed (RMD) Beats Q2 Earnings & Sales On Growth In All Lines

ResMed Inc. (NYSE:RMD) announced second-quarter fiscal 2018 adjusted earnings per share (EPS) of $1, up 36.9% from the prior-year quarter. Earnings beat the Zacks Consensus Estimate of 78 cents by 28.2%.

Including one-time items, ResMed reported EPS of 7 cents in the quarter, down 87% year over year. The company has to face extra income tax expense of $119.9 million in the quarter owing to the latest U.S. tax reform. This was a one-time transition tax on unremitted foreign earnings. The lower corporate tax rate also resulted in reduced net deferred tax assets along with a rise in income tax expense of $6.7 million.

A Closer View of the Top Line

Revenues in the reported quarter increased 13.4% year over year (up 11% at constant exchange rate or CER) to $601.3 million. The figure also beat the Zacks Consensus Estimate of $577 million.

On a geographic basis, excluding Brightree, revenues in the Americas totaled $329.2 million, reflecting a 12% increase over the prior-year quarter. Moreover, revenues from Brightree in the quarter totaled $38.7 million, up 14% year over year. Revenues in the combined EMEA and APAC region were $233.4 million, highlighting an 8% rise at CER from a year ago.

Gross margin contracted 10 basis points (bps) year over year to 58.2% in the reported quarter. Selling, general and administrative expenses were up 8.9% year over year to $151.8 million, while there was a 6.3% increase in Research and Development expenses to $40.6 million. This led to an 8.4% rise in adjusted operating expenses, which amounted to $192.4 million. However, adjusted operating margin in the quarter rose 140 bps to 26.2%.

ResMed Inc. Price, Consensus and EPS Surprise

ResMed Inc. Price, Consensus and EPS Surprise | ResMed Inc. Quote

Financial Updates

ResMed exited second-quarter fiscal 2018 with cash and cash equivalents of $858.9 million, compared with $811.1 million at the end of first-quarter fiscal 2018.

Year to date, the company generated $226.5 million of cash flow from operations, up from the year-ago figure of $206.1 million.

Concurrent to its second-quarter earnings release, ResMed announced a quarterly dividend of 35 cents per share, same as the prior payout. The dividend will be paid on Mar 15, to shareholders of record as on Feb 8.

As part of the company’s capital management plan, ResMed repurchased 100,000 shares for $8.5 million in the fiscal second quarter.

Guidance

Management expects SG&A expenses, as a percentage of revenues, in the band of 25−26% for the second half of fiscal 2018. R&D expenses, as a percentage of revenues, are projected at 7% for fiscal 2018. This reflects marketing expenses associated with product launches along with the ongoing legal expenses.

Our Take

ResMed exited the second quarter on a promising note with earnings and revenues beating the Zacks Consensus Estimate. On the bright side, the company achieved solid double-digit revenue growth in the quarter, led by sales from Software-as-a-Service businesses as well as its new mask products and devices. In terms of recent developments, the company also recently informed about its first self-branded portable oxygen concentrator — Mobi — subject to a fiscal third-quarter launch. All these factors boost investor faith in the stock.

However, challenges like competitive bidding and reimbursement issues continue to hurt the stock. The company is also exposed to foreign exchange fluctuations.

Zacks Rank & Other Key Picks

ResMed carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader medical sector are Bio-Rad Laboratories, Inc. (NYSE:BIO) , Intuitive Surgical, Inc. (NASDAQ:ISRG) and Amedisys (NASDAQ:AMED) . Notably, Bio-Rad sports a Zacks Rank #1 (Strong Buy), while Amedisys and Intuitive Surgical carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bio-Rad is expected to release fourth-quarter 2017 results on Feb 22. The Zacks Consensus Estimate for fourth-quarter adjusted EPS is $1.27 and for revenues is $617.2 million.

Amedisys is expected to release fourth-quarter 2017 results on Feb 27. The Zacks Consensus Estimate for fourth-quarter adjusted EPS is 59 cents and for revenues is $394.9 million.

Intuitive Surgical is expected to release fourth-quarter 2017 results on Jan 25. The Zacks Consensus Estimate for fourth-quarter adjusted EPS is $2.27 and for revenues is $869.6 million.

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