(RMD - Analyst Report
) posted adjusted earnings per share (EPS) of 59 cents in the third quarter of fiscal 2013, edging past the Zacks Consensus Estimate by a couple of cents. The results were also better than the year-ago EPS by 28%. Apart from increased sales and considerable margin expansion, a decline in tax rate supported the huge EPS improvement.
Including one-time amortization expenses, reported EPS was 58 cents, up 32% year over year.
Revenues improved 10% year over year (up 10% at constant exchange rates or CER) to $383.6 million, a record high for the company. However, the top-line missed the Zacks Consensus Estimate of $386 million. Riding on the back of increasing awareness regarding sleep-disordered breathing and a vastly under-penetrated and growing sleep-disorder breathing market, revenues in the Americas surged 13% to $215.2 million whereas revenues outside the Americas increased 6% (up 6% at CER) at $168.4 million. Growth in the overseas market was on account of strong contributions from Germany, U.K. and Asia-Pacific region.
The company reported domestic flow generator sales of $95.4 million in the quarter, up 21% year over year due to robust sales of Automatic Positive Airway Pressure (“APAP”) systems and Bi-Level device. Masks and other sales were $119.8 million in the Americas, up 8% year over year, on the back of higher sales of the mask product range and persistent growth in accessories.
Outside the Americas, flow generator sales were $114.6 million, up 9% (up 9% at CER) year over year. Masks and other sales outside the Americas, were $53.8 million, flat year over year. At CER, worldwide flow generator sales increased 14% year over year, while masks and other increased 5%.
Gross profit in the reported quarter increased 13.8% to $239.4 million leading to a 210 basis points (bps) expansion in gross margin to 62.4%. The improvement in gross margin was attributed to favorable product mix towards higher-margin flow generators and robust accessory sales. Selling, general and administrative, and research and development expenses during the quarter increased 8% (up 8% at CER) to $109.6 million and up 10% (up 11% at CER) to $31.2 million, respectively. Nevertheless, operating margin expanded about 320 bps to 25.1% in the quarter.
ResMed exited the third quarter with cash and cash equivalents of $1,012.7 million compared with $809.5 million at the end of fiscal 2012. Cash flow from operations was $107 million in the quarter. This depicts solid capital management fundamentals.
ResMed repurchased 1.5 million shares for $67.3 million in the quarter with 6.1 million shares left under the current repurchase authorization. In fiscal 2013, ResMed intends to purchase at least 2 million shares through its existing share buyback program. Additionally, the Board declared a quarterly dividend of 17 cents per share, payable on Jun 18, 2013.
Notably, mask sales witnessed a slowdown in the third quarter. Also, the unfavorable macroeconomic scenario in Europe remains an overhang for ResMed.
Despite the contagion of economic problems in Europe, the company’s solid underlying growth in the region is encouraging. Moreover, penetration into the untapped Asia-Pacific market continues to drive growth. With a healthy portfolio of well-regarded solutions to cater to the growing sleep-disorder market, there is no dearth of positive catalysts at ResMed.