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ResMed (RMD) Q4 Earnings & Sales Beat on Overall Growth

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ResMed Inc. (RMD - Free Report) announced fourth-quarter fiscal 2018 adjusted earnings per share (EPS) of 95 cents, up 23.4% from the prior-year quarter. Earnings beat the Zacks Consensus Estimate of 90 cents by 5.6%.

Including one-time items, ResMed reported EPS of 76 cents in the quarter, up 7% year over year.

Full-year adjusted EPS came in at $3.53, improving from the year-ago $2.82. Also, the figure beat the Zacks Consensus Estimate by a penny.

A Closer View of the Top Line

Revenues in the reported quarter increased 12% year over year (up 10% at constant exchange rate or CER) to $623.6 million. The figure also beat the Zacks Consensus Estimate by 1.2%.

Fiscal 2018 revenues of $2.34 billion were up 13% from the year-ago figure. The figure was on par with the Zacks Consensus Estimate.

ResMed Inc. Price, Consensus and EPS Surprise

 

On a geographic basis, excluding Brightree, revenues in the United States, Canada and Latin America totaled $346.7 million, reflecting a 10% increase over the prior-year quarter. Revenues from Brightree in the quarter totaled $40.4 million, up 12% year over year. Revenues in the combined EMEA and APAC region were $236.5 million, highlighting an 9% rise at CER from a year ago.

Adjusted gross margin contracted 10 basis points (bps) year over year to 58.1% in the reported quarter. Fall in average selling prices led to the gross margin contraction, which was however, partially offset by procurement and production efficiencies.

Selling, general and administrative expenses were up 6% year over year to $156.8 million, while there was an 8.2% increase in Research and Development expenses to $39.7 million. This led to an 6.4% rise in adjusted operating expenses, which amounted to $196.5 million. However, adjusted operating margin in the quarter rose 160 bps to 26.6%.

Financial Updates

ResMed exited fiscal 2018 with cash and cash equivalents of $188.7 million, compared with $821.9 million at the end of fiscal 2017.

The company generated $505 million of cash flow from operations in fiscal 2018, up from the year-ago figure of $414.1 million.

Along with the fourth-quarter earnings release, ResMed announced a quarterly dividend of 37 cents per share, same as the prior payout. The dividend will be paid on Sep 20, 2018, to shareholders of record as on Aug 16, 2018.

As part of the company’s capital management plan, ResMed repurchased 250,000 shares for $25.9 million in the fiscal fourth quarter.

Guidance

Management expects SG&A expenses of around 24-25%, as a percentage of revenues, for fiscal 2019. R&D expenses, as a percentage of revenues, are projected in the band of 6-7% for fiscal 2019. This reflects marketing expenses associated with product launches along with ongoing legal expenses.

Our Take

ResMed exited the fourth quarter on a promising note. The company achieved solid double-digit global revenue growth in the quarter, led by sales from Software-as-a-Service businesses as well as new mask products and devices. The company also delivered impressive performance across all geographical regions. In terms of recent reimbursement developments, the company is upbeat about approvals in France, South Korea and Japan. Management is also looking forward to the proposed rule issued by Centers for Medicare and Medicaid Services to make changes to the bidding and pricing methodologies under the competitive bidding program.

Further, within mask and accessories business, ResMed continues to see strong adoption of AirFit F20 full face mask and AirFit N20 nasal mask products across all geographic regions. Also, the company seems to be upbeat about the recently-completed HEALTHCAREfirst buyout which is expected to broaden ResMed’s Software-as-a-Service line. All these factors boost investor faith in the stock.

However, the company is also exposed to foreign exchange fluctuations.

Zacks Rank & Key Picks

ResMed carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical sector which reported solid results this earnings season are Intuitive Surgical (ISRG - Free Report) , Chemed Corporation (CHE - Free Report) and Align Technology, Inc. (ALGN - Free Report) . While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Align Technology carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported second-quarter 2018 adjusted EPS of $2.76, which beat the Zacks Consensus Estimate of $2.48. Revenues totaled $909.3 million, also surpassing the consensus estimate of $870 million.

Align Technology posted second-quarter 2018 adjusted EPS of $1.30, steering past the Zacks Consensus Estimate of $1.09. Revenues came in at $490.3 million, beating the consensus estimate of $462.9 million.

Chemed reported second-quarter 2018 adjusted EPS of $2.81, which trumped the Zacks Consensus Estimate of $2.68. Revenues of $441.8 million edged past the Zacks Consensus Estimate of $432.3 million.

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