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ResMed Inc (RMD - Analyst Report) reported first quarter 2014 adjusted earnings per share of 56 cents, slightly missing the Zacks Consensus Estimate of 57 cents per share. The first quarter figure also remained ahead of the prior-year quarter’s earnings of 49 cents per share, registering an increase of 14% year over year.

Revenues in Details

Revenues rose 5% to $357.7 million in the quarter ended Sep 30, 2013 from $339 million in the prior-year quarter, but lagged the Zacks Consensus Estimate of $373 million.

Global revenues were driven by higher sales of flow generators, accompanied with healthy sales of masks spares and accessories.

On a geographic basis, revenues in the Americas rose by 4% from the year-ago quarter to $201.5 million, while sales outside America surged 7% over the prior year quarter and 5% on a constant currency basis.
 
Europe experienced a steep regional growth during the quarter, along with robust sales being recorded in other countries like France, U.K and Switzerland.

Operational Update

The company’s gross margin was 63.7% in the reported quarter, reflecting a massive expansion of 230 basis points (bps) year over year, on account of favorable currency movements, a healthy product mix and strong manufacturing efficiencies.

Research and development expenses were $27.3 million or 7.6 % of revenue, compared with $27.2 million or 8% of revenues in the prior year quarter.

Selling, general and administration expenses amounted to $101.3 million, increasing 3% year over year. It accounted for 28.3% of revenues in the quarter as compared to 28.9% from the year-ago period.

Income from operations came in at $96.9 million, marking an upside of 20% from the prior-year quarter. The company posted a net income for the quarter at $80.9 million, an increase of 14% over the prior-year quarter.

Financial Updates

ResMed exited the quarter ended on Sep 30 2013, with cash and cash equivalents of $976.5 million compared with $876 million at the end of Jun 30, 2013.

The company generated $90.4 million in cash flow from operations in the quarter, reflecting strong underlying earnings and effective working capital management.

Capital expenditure was $16.8 million, while depreciation and amortization stood at $17.9 million. ResMed also repurchased 432,000 shares for $21.1 million in the reported quarter. At the end of the quarter the company still had 4.1 million shares remaining under its authorized buyback program.

Our Take

ResMed showed slight improvement in the first quarter of fiscal 2014, on the back of a tough product cycle. It is currently facing challenges like reimbursement pressure and increasing competition particularly in the flow generator space, along with foreign currency headwinds. Additionally a slowdown in the market demand can also act as a deterrent to growth going forward.

However, new product launches and robust growth from European and the emerging nations, are likely to boost investors confidence in the near term.

ResMed Inc.currently carries a Zacks Rank #3 (Hold). Other stocks that are worth a look include Bio-Rad Laboratories, Inc. (BIO - Snapshot Report) and INSYS Therapeutics, Inc. (INSY - Snapshot Report) each carrying a Zacks Rank #1 (Strong Buy) and Boston Scientific Corp. (BSX - Analyst Report) carrying  Zacks Rank #2 (Buy).

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