Back to top

Image: Bigstock

ResMed (RMD) Q2 Earnings in Line, Revenues Miss Estimates

Read MoreHide Full Article

ResMed Inc.’s (RMD - Free Report) adjusted earnings per share (EPS) in the second quarter of fiscal 2022 were $1.47, up 4.3% year over year. The metric was in line with the Zacks Consensus Estimate.

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

ResMed has been witnessing ongoing recovery of core patient flow across its business. The company is also involved in the provision of digital health solutions and other tools to customers to facilitate remote care amid the pandemic. These factors have provided a significant boost to ResMed’s bottom line in the fiscal second quarter.

ResMed Inc. Price, Consensus and EPS Surprise

 

ResMed Inc. Price, Consensus and EPS Surprise

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

GAAP EPS in the reported quarter was $1.37, up 11.4% from the year-ago EPS of $1.23.

Revenues

Fiscal second-quarter revenues (on a reported basis) increased 11.9% year over year (up 13% at a constant exchange rate or CER) to $894.9 million. However, the figure lagged the Zacks Consensus Estimate by 3.9%.

A Closer View of Q2 Top Line

Total Sleep and Respiratory Care revenues in the United States, Canada and Latin America improved 14.1% from the prior-year period to $486.8 million.

Total Sleep and Respiratory Care revenues in combined Europe, Asia and other markets rose 9.8% on a reported basis and 12% at CER to $309 million.

Global revenues from total Sleep and Respiratory Care in the quarter under review were $795.8 million, up 12.4% on a reported basis and 13% at CER.

Software as a Service (SaaS) revenues grew 7.8% to $99 million.

Revenue growth in the quarter was due to increased demand for ResMed’s sleep and respiratory care devices, driven by a steady recovery of markets from COVID-19 impacts and greater device demand in response to a competitor’s ongoing product recall. ResMed also recorded immaterial incremental revenues from COVID-related demand, which was similar to the year-ago quarter. The upside in SaaS revenues was driven by high-single-digit growth across home medical equipment, as well as facility-based and home-based care settings on a year-over-year basis.

Margins

Adjusted gross profit in the quarter under review rose 7.7% to $515.5 million despite an 18.1% uptick in the cost of sales (excluding expenses related to the amortization of acquired intangibles and restructuring).

Adjusted gross margin for the fiscal second quarter was 57.6%, reflecting a 225-basis point (bps) contraction, primarily owing to higher freight component and manufacturing costs, and unfavorable currency movements, partially offset by favorable product mix changes.

Selling, general and administrative expenses rose 9.4% year over year to $185.4 million (up 10% at CER) predominantly on employee-related expenses. Research and development expenses increased 13.8% to $62.5 million.

Adjusted operating income was $267.7 million in the quarter under discussion, up 5.2% from the year-ago quarter. Adjusted operating margin contracted 189 bps year over year to 29.9%.

Financial Updates

ResMed exited the second quarter of fiscal 2022 with cash and cash equivalents of $194.5 million compared with $276.1 million at the end of the fiscal first quarter. Total debt (short and long-term) at the end of the fiscal second quarter was $679.9 million compared with $655.4 million a year ago.

Cumulative net cash used in operating activities at the end of the fiscal second quarter was $154.2 million compared with cumulative net cash inflow of $313.9 million in the year-ago quarter.

The company paid out $61.2 million as dividends in the fiscal second quarter.

Our Take

ResMed’s earnings met the Zacks Consensus Estimate in the fiscal second quarter and increased year over year. The company saw increased demand for sleep and respiratory care devices on steady recovery of markets from COVID-19 impacts and a competitor’s product recall. The continued robust uptake of ResMed’s AirSense 10 and AirSense 11 platforms buoy optimism for the company. In addition, the solid adoption of the AirView for ventilation software solution and ResMed’s plans to expand this technology worldwide raise investors’ confidence.

However the ongoing component supply issues, as well as challenges pertaining to sea and air freight, are hampering the company’s ability to meet the demand for its products. Further, the emergence of the highly contagious Omicron variant of COVID-19 has been impacting patient volumes for certain verticals within the SaaS business, particularly skilled nursing facilities. Mounting operating expenses and contraction of both margins are other headwinds.

Zacks Rank and Key Picks

ResMed currently carries a Zacks Rank #3 (Hold).

Here are a few stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.

AMN Healthcare Services, Inc. (AMN - Free Report) presently has an Earnings ESP of +10.29% and a Zacks Rank of 2 (Buy). The company is slated to release the fourth quarter and 2021 results on Feb 17. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare’s long-term earnings growth rate is estimated at 16.2%. AMN’s earnings yield of 6.9% compares favorably with the industry’s 1.1%.

Thermo Fisher Scientific Inc. (TMO - Free Report) currently has an Earnings ESP of +12.77% and a Zacks Rank of 3. The company is anticipated to release its fourth-quarter and 2021 results on Feb 2.

Thermo Fisher’s long-term earnings growth rate is estimated at 14%. TMO’s earnings yield of 3.8% compares favorably with the industry’s (5.5%).

Eli Lilly and Company (LLY - Free Report) has an Earnings ESP of +0.20% and a Zacks Rank of 2 at present. The company is set to report its fourth quarter and 2021 results on Feb 3.

Eli Lilly’s long-term earnings growth rate is estimated at 15.6%. LLY’s earnings yield of 3.6% compares with the industry’s 7.9%.