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ResMed Inc. (RMD - Analyst Report) reported EPS of 44 cents in the third quarter of fiscal 2012, beating the Zacks Consensus Estimate of 41 cents and also the year-ago EPS by 29%. Apart from increased sales and higher margin, a 6.4% fall in shares outstanding contributed to the bottom line improvement.

Revenues increased 11% year over year (up 13% at constant exchange rates or CER) to $349.1 million and surpassed the Zacks Consensus Estimate of $340 million. Based on a favorable product mix and vastly under-penetrated and growing sleep-disorder breathing market, revenues in Americas increased 18% year over year to $189.9 million while the same from outside Americas increased 4% (7% at CER) to $159.2 million. Strong double-digit domestic flow generator sales (at 14%), particularly the S9 line of flow generators, coupled with the roll out of the final products on this platform also contributed to the growth.  

Gross profit climbed 15.3% to $210.4 million, leading to 210 basis points (bps) expansion in gross margin. Adjusted operating expenses rose 11.6% to $129.4 million due to higher selling, general and administrative (SG&A) expenses (up 9%; 10% at CER) and research and development (R&D) expenses (up 22%; 18% at CER). However, operating margin increased 200 bps to 23.2% during the quarter.

ResMed exited the quarter with cash and cash equivalents of $776.1 million compared with $735.3 million at the end of June 2011. Cash flow generated from operations was $86 million for the quarter. ResMed repurchased 2.3 million shares for $67 million during the quarter (10.8 million shares for $302.2 million in the year-to-date) and was left with authorization to repurchase 11.6 million shares.

ResMed is one of the leading players in the generators, masks, and related accessories market that are used for the treatment of obstructive sleep apnea and related respiratory disorders. The company is focused on medical equipment for the diagnosis and treatment of sleep-disordered breathing. Besides, the industry is benefiting from an aging population and an inclination for availing medical care away from hospitals.

The company remains optimistic based on its new generation S9 line of products. The company is also positive about its newly introduced patient compliance management solution named EasyCare Online.

Presently, ResMed is emphasizing on building strategic relationships in order to penetrate further in the international arena. This includes the 5-year exclusive distribution agreement with CareFusion (CFN - Analyst Report), providing CareFusion the exclusive right to distribute the ResMed Stellar 100 and 150 non-invasive ventilators and their related accessories into the US institutional healthcare market. Currently ResMed retains a short-term Zacks #3 (Hold Rank).  Over the longer term, we are “neutral’ on the stock.

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