A month has gone by since the last earnings report for ResMed (RMD). Shares have lost about 13.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is ResMed due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
ResMed Sees Y/Y Rise in Q2 Revenues on Strong SaaS Business
ResMed announced second-quarter fiscal 2019 adjusted earnings per share (EPS) of $1, in line with the year-ago number. The adjusted earnings, however, beat the Zacks Consensus Estimate by 5.3%.
Including one-time items, ResMed delivered EPS of 86 cents in the quarter under review as compared to 7 cents a year ago.
A Closer View of the Top Line
Revenues in the reported quarter increased 8% year over year (up 9% at constant exchange rate or CER) to $651.1 million. The figure, however, missed the Zacks Consensus Estimate of $667 million.
On a geographic basis, excluding Software as a Service, revenues in the United States, Canada and Latin America totaled $358.5 million, reflecting a 9% increase over the prior-year period. Revenues from Software as a Service in the quarter under consideration summed $63.2 million, up 63% year over year. Revenues in the combined EMEA and APAC region were $229.4 million, highlighting a 1% rise at CER from the year-earlier tally.
Excluding the MatrixCare purchase accounting deferred revenue fair value adjustment, the adjusted gross margin for the fiscal second quarter was 59.1%, a 90-basis point expansion from the year-ago number.
Selling, general and administrative expenses were up 6.4% year over year to $161.6 million while Research and Development expenses increased 6.1% to $43.1 million. This in turn, induced a 6.4% rise in adjusted operating expenses, which amounted to $204.7 million. However, adjusted operating margin in the reported quarter rose 133 bps to 27.5%.
Financial Updates
ResMed exited second-quarter fiscal 2019 with cash and cash equivalents of $149.5 million compared with $230.2 million at the end of fiscal 2018.
Year to date, the company generated $177.6 million of cash flow from operations compared with the year-ago figure of $226.5 million.
Along with the earnings release of fiscal second quarter, ResMed approved a quarterly dividend of 37 cents per share, same as the previous payout. The dividend is payable Mar 14, 2018 to shareholders of record as of Feb 7, 2018.
Given its recent acquisitions including MatrixCare and Propeller Health, the company has suspended its share buyback program.
Outlook
Assuming current exchange rates and likely trends in product and geographic mix, ResMed expects its gross margin for the second half of fiscal 2019 to be broadly consistent with its year-ago gross margin. SG&A as a percentage of revenues is expected to be within 25% for the second half of the current fiscal year. Meanwhile, R&D expenses as a percentage of revenues is projected to be in the range of 7-8% for the second half of fiscal 2019.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -11.31% due to these changes.
VGM Scores
Currently, ResMed has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
ResMed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
ResMed Inc. (RMD): Free Stock Analysis Report
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