ResMed (RMD) Q3 Earnings & Sales Beat On Overall Growth

ResMed Inc. (NYSE:RMD) announced third-quarter fiscal 2018 adjusted earnings per share (EPS) of 92 cents, up 29.6% from the prior-year quarter. Earnings beat the Zacks Consensus Estimate of 83 cents by 10.8%.

Including one-time items, ResMed reported EPS of 76 cents in the quarter, up 22.6% year over year.

A Closer View of the Top Line

Revenues in the reported quarter increased 15.1% year over year (up 10% at constant exchange rate or CER) to $591.6 million. The figure also beat the Zacks Consensus Estimate of $564.9 million.

On a geographic basis, excluding Brightree, revenues in the United States, Canada and Latin America totaled $317.5 million, reflecting a 7% increase over the prior-year quarter. Moreover, revenues from Brightree in the quarter totaled $39.9 million, up 14% year over year. Revenues in the combined EMEA and APAC region were $234.2 million, highlighting an 16% rise at CER from a year ago.

Adjusted gross margin contracted 10 basis points (bps) year over year to 58.2% in the reported quarter. Fall in average selling prices led to the gross margin contraction, which was however, partially offset by procurement and production efficiencies.

ResMed Inc. Price, Consensus and EPS Surprise

Selling, general and administrative expenses were up 7.3% year over year to $147.9 million, while there was a 6.6% increase in Research and Development expenses to $37.4 million. This led to an 7.1% rise in adjusted operating expenses, which amounted to $185.3 million. However, adjusted operating margin in the quarter rose 230 bps to 26.9%.

Financial Updates

ResMed exited third-quarter fiscal 2018 with cash and cash equivalents of $704.3 million, compared with $858.9 million at the end of second-quarter fiscal 2018.

Year to date, the company generated $375.6 million of cash flow from operations, up from the year-ago figure of $273.7 million.

Along with the third-quarter earnings release, ResMed announced a quarterly dividend of 35 cents per share, same as the prior payout. The dividend will be paid on Jun 14, to shareholders of record as on May 10.

As part of the company’s capital management plan, ResMed repurchased 200,000 shares for $19.4 million in the fiscal third quarter.

Guidance

Management expects SG&A expenses of around 25%, as a percentage of revenues, for the fourth-quarter fiscal 2018. R&D expenses, as a percentage of revenues, are projected in the band of 6-7% for the fourth quarter. This reflects marketing expenses associated with product launches along with the ongoing legal expenses.

Our Take

ResMed exited the third quarter on a promising note. The company achieved solid double-digit global 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 recently received reimbursement approval for mandibular repositioning devices in France. This should drive accelerate the uptake of ResMed’s dental devices which help treat sleep apnea by 35%.

Further, the company announced that South Korea will start reimbursing diagnosis and therapeutic treatment for sleep apnea in the near term. All these factors boost investor faith in the stock.

However, competitive bidding 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 space, which reported solid earnings this season, are Laboratory Corporation of America Holdings (NYSE:LH) , Chemed Corporation (NYSE:CHE) and Intuitive Surgical, Inc. (NASDAQ:ISRG) . While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), LabCorp and Chemed carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported first-quarter 2018 adjusted earnings of $2.44 per share, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the Zacks Consensus Estimate by 10.6%.

LabCorp reported first-quarter 2018 adjusted EPS of $2.78, beating the Zacks Consensus Estimate by 5.3%. Revenues came in at $2.85 billion, exceeding the consensus estimate of $2.78 billion.

Chemed posted first-quarter 2018 adjusted EPS of $2.72, beating the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, steering past the Zacks Consensus Estimate of $420 million.

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