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ResMed (RMD) Q3 Earnings Surpass Estimates, Revenues Miss

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ResMed Inc.’s (RMD - Free Report) adjusted earnings per share (EPS) in the third quarter of fiscal 2021 came in at $1.30, up by 0.8% year over year. The metric also beat the Zacks Consensus Estimate by 6.6%.

The adjustments include certain non-recurring expenses/benefits like amortization of acquired intangibles, and restructuring costs and expenses among others.

Ongoing recovery of core patient flow across the company’s business and provision of digital health solutions and other tools to customers aiding remote care amid the pandemic boosted ResMed’s bottom line during the fiscal third quarter.

GAAP loss per share in the reported quarter was 54 cents against the year-ago EPS of $1.12.

Revenues

Fiscal third-quarter revenues on a reported basis were marginally in line year over year (down 3% at constant exchange rate or CER) at $768.8 million. Meanwhile, the figure lagged the Zacks Consensus Estimate by 2%.

A Closer View of Q3 Top Line

Total Sleep and Respiratory Care revenues in the United States, Canada and Latin America improved 2.4% from the prior-year period to $402.9 million. Software as a Service (SaaS) revenues grew 4.7% to $93.8 million.

Total Sleep and Respiratory Care revenues in combined Europe, Asia and other markets fell 4.9% on a reported basis and 13% at CER to $272.1 million.

ResMed Inc. Price, Consensus and EPS Surprise

ResMed Inc. Price, Consensus and EPS Surprise

ResMed Inc. price-consensus-eps-surprise-chart | ResMed Inc. Quote

Global revenues from total Sleep and Respiratory Care in the quarter under review were $674.9 million, down 0.7% on a reported basis and 4% at CER.

Overall decrease in revenues primarily resulted from a fall in device sales including lower demand for ventilators due to COVID-19 and lack of any incremental revenues from COVID related demand in the reported quarter. However, an uptick in SaaS revenues is led by continued growth in resupply service offerings and stabilizing patient flow in out-of-hospital care settings.

Margins

Adjusted gross profit in the quarter under review fell 0.8% to $458.2 million due to a 0.9% uptick in cost of sales (excluding expenses related to amortization of acquired intangibles and restructuring).

Adjusted gross margin for the fiscal third quarter was 59.6%, reflecting a 42-basis point (bps) contraction from the year-ago number due to additional manufacturing costs associated with the transition to the company’s new Singapore site during the quarter, higher freight costs and geographic mix changes.

Selling, general and administrative expenses were down 6.9% year over year to $160.4 million (down 11% at CER). Research and development expenses increased 8.7% to $55.9 million.

Adjusted operating income was $241.8 million in the quarter under discussion, up 1.6% from the year-ago quarter. Adjusted operating margin expanded 53 bps year over year to 31.5%.

Financial Updates

ResMed exited the third quarter of fiscal 2021 with cash and cash equivalents of $230.6 million compared with $255.9 million at the end of the second quarter of fiscal 2021. Total debt (short and long-term) at the end of the third quarter of fiscal 2021 was $731 million compared with $825.7 million at the end of the second quarter of fiscal 2021.

Cumulative net cash flow from operating activities at the end of the fiscal third quarter was $510.2 million compared with $471.9 million a year ago.

The company paid out $56.8 million as dividends during the fiscal third quarter.

Our Take

ResMed exited the fiscal 2021 third quarter with better-than-expected earnings but lower-than-expected revenues. Lower device sales including decreased demand for ventilators due to COVID-19 and lack of any incremental revenues from COVID related demand in the reported quarter adversely impacted the revenues of the total Sleep and Respiratory Care business across geographies. Gross margin contraction also does not bode well for the company.

However, recovery of core patient flow, and increasing adoption of digital health solutions and other tools to aid remote care amid the pandemic looks encouraging. In the quarter, the company registered strong sales across its mask product portfolio in the U.S., Canada and Latin America, which seem appreciative. Further, the SaaS arm performed impressively. Expansion of operating margin buoys optimism.

Zacks Rank and Stocks to Consider

ResMed currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space are Chemed Corporation (CHE - Free Report) , Integra LifeSciences Holdings Corporation (IART - Free Report) and HCA Healthcare, Inc. (HCA - Free Report) .

Chemed reported first-quarter 2021 adjusted EPS of $4.44, beating the Zacks Consensus Estimate by 5.7%. Net revenues of $527.4 million outpaced the consensus estimate by 2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Integra, a Zacks Rank #2 company, reported first-quarter 2021 adjusted EPS of 69 cents, beating the Zacks Consensus Estimate by 23.2%. Revenues of $360.1 million outpaced the consensus mark by 2.9%.

HCA Healthcare reported first-quarter 2021 adjusted EPS of $4.14, surpassing the Zacks Consensus Estimate by 23.6%. Net revenues of $14 billion exceeded the Zacks Consensus Estimate by 2.2%. It currently sports a Zacks Rank #1.

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