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Why Is ResMed (RMD) Up 1.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for ResMed (RMD - Free Report) . Shares have added about 1.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ResMed due for a pullback? 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 Q4 Earnings & Revenues Top Estimates, Margins Up

ResMed announced strong fourth-quarter fiscal 2020 results, wherein adjusted earnings per share came in at $1.33, up 40% year over year. The metric also beat the Zacks Consensus Estimate by 37.1%.

Full-year adjusted earnings per share was $4.76, reflecting a 30.8% increase from the year-earlier $3.64. The metric surpassed the Zacks Consensus Estimate by 6.5%.

Increase in demand for the company’s ventilators and ventilation mask systems and provision of digital health solutions and other tools to customers aiding remote care amid the pandemic boosted ResMed’s sales during the fiscal fourth quarter.

Revenues

Fiscal fourth-quarter revenues, on a reported basis, increased 9.3% year over year (up 10% at CER) to $770.3 million. The figure beat the Zacks Consensus Estimate by 8.4%.

Full-year revenues were $2.96 billion, reflecting a 13.4% increase from the year-ago period (up 15% at CER). Revenues surpassed the Zacks Consensus Estimate by 1.4%.

A Closer View of Q4 Top Line

Excluding Software-as-a-Service (SaaS), total Sleep and Respiratory Care, revenues in the United States, Canada and Latin America improved 3.9% from the prior-year period to $400.5 million. SaaS revenues grew 7.4% reportedly and 7% at CER to $91.5 million.

Total Sleep and Respiratory Care revenues in combined Europe, Asia, and other markets grew 18.8% on a reported basis and 22% at CER to $278.3 million.

Global revenues from total Sleep and Respiratory Care in the quarter under review were $678.9 million, up 9.5% at reported basis and 11% at CER.

Overall increase in revenues was driven by robust performance of its mask and device product portfolios on increased demand for ventilators and ventilator masks.

Margins

Adjusted gross profit in the quarter under review rose 10.4% to $461.4 million despite a 7.6% uptick in cost of sales (excluding expenses related to amortization of acquired intangibles).

Adjusted gross margin for the fiscal fourth quarter was 59.9%, reflecting a 62-basis point (bps) expansion from the year-ago number on benefits from changes in product mix, partially offset by declines in manufacturing and procurement efficiencies driven by higher air freight costs.

Selling, general and administrative expenses were down 3.6% year over year to $165.4 million (unchanged at CER). Research and development expenses increased 2.7% to $52.5 million.

Adjusted operating income was $243.4 million in the quarter under discussion, up 24.8% from $195.1 million in the year-ago quarter. Adjusted operating margin expanded 393 bps year over year to 31.6%.

Financial Updates

ResMed exited the fiscal 2020 with cash and cash equivalents of $463.2 million compared with $147.1 million at the end of the fiscal 2019. Total debt (short and long-term) at the end of fiscal 2020 was $1.18 billion, marking a reduction of 7.5% from $1.27 billion at the end of fiscal 2019.

Cumulative cash flow from operating activities was $802.3 million at the end of fiscal 2020 compared with $459.1 million a year ago.

The company paid out $56.5 million as dividends during the fiscal fourth quarter. Along with the earnings release, ResMed announced a regular quarterly dividend payout of 39 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, ResMed has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, ResMed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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