A month has gone by since the last earnings report for ResMed Inc. (NYSE:RMD) . Shares have lost about 7.5% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is RMD due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
ResMed 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.
Adjusted 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%.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been four moves higher in the last two months. In the past month, the consensus estimate has shifted by 6.9% due to these changes.
VGM Scores
Currently, RMD has a nice Growth Score of B, however its Momentum is doing a bit better with an A. The stock was also 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for growth and to a lesser degree value.
Outlook
Estimates have been trending upward for the stock,and the magnitude of these revisions looks promising. Interestingly, RMD has a Zacks Rank #3 (Hold). We expect in-lines return from the stock in the next few months.
ResMed Inc. (RMD): Free Stock Analysis Report
Original post
Zacks Investment Research