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ResMed (RMD) Q3 Earnings Top on Higher Ventilator Sales

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ResMed Inc. (RMD - Free Report) announced strong third-quarter fiscal 2020 results, wherein adjusted earnings per share (EPS) came in at $1.29, up 45% year over year. The metric also beat the Zacks Consensus Estimate by 29%.

On a GAAP (reported) basis, EPS was $1.12 for the quarter under review, reflecting an increase of 53% from the year-ago period.

Increase in demand for the company’s life support ventilators, non-invasive ventilators and ventilation mask systems amid the pandemic outbreak boosted ResMed’s sales during the third quarter

Fiscal third-quarter revenues, on a reported basis, increased 16.2% year over year (up 17% at constant exchange rate or CER) to $769.5 million. The figure beat the Zacks Consensus Estimate by 7.6%.

A Closer View of the Top Line

Geographically, excluding Software-as-a-Service, total Sleep and Respiratory Care revenues in the United States, Canada and Latin America improved 12% at CER from the prior-year period to $393.5 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

Combined Europe, Asia, and other markets grew 27% at CER to $286.3 million in terms of total Sleep and Respiratory Care. Overall increase in revenues was driven by the robust performance of its mask and device product portfolios on increased demand for ventilators and ventilator masks.

Global revenues from Software-as-a-Service in the quarter under review were $89.6 million, representing 12% increase year over year.

Margins

Adjusted gross margin for the fiscal third quarter was 60%, reflecting an 84-basis point (bps) expansion from the year-ago number. The expansion was fueled by benefits from changes in product mix, and manufacturing and procurement efficiencies, partially offset by declines in average selling prices.

Selling, general and administrative expenses were up 4.8% year over year to $172.4 million (up by 7% at constant exchange rate or CER). Research and development expenses increased 8.1% to $51.4 million (up 8% at CER). However, adjusted operating margin in the reported quarter expanded 377 bps to 30.9%.

Financial Updates

ResMed exited the third quarter of fiscal 2020 with cash and cash equivalents of $352.9 million compared with $204.1 million at the end of the fiscal second quarter.

Cumulative cash flow from operating activities was $471.9 million at the end of the third quarter compared with $317.2 million in the year-ago period.

Along with the earnings release, ResMed announced a regular quarterly dividend payout of 39 cents per share.

Our Take

The company delivered solid third-quarter fiscal 2020 results, with earnings and revenues beating the Zacks Consensus Estimate. It is encouraging to note that ResMed registered growth at CER across both its key operating segments — Total Sleep and Respiratory Care, and Software-as-a-Service.

Ventilators and mask sales were particularly strong on ramped up production and sales of the same amid the COVID-19 pandemic. In this regard, ResMed produced over 52,000 noninvasive ventilators, including bilevels and invasive ventilators during the quarter. This marked a threefold increase in production from the year-ago period.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the broader medical space are Exact Sciences (EXAS - Free Report) , Aphria Inc. and West Pharmaceutical Services, Inc. (WST - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Exact Sciences’ first-quarter 2020 revenues is pegged at $349.2 million, suggesting year-over-year improvement of 115.8%. The same for loss per share stands at 60 cents, indicating 9.1% improvement from the year-ago reported figure.

The Zacks Consensus Estimate for Aphria’s fourth-quarter fiscal 2020 revenues is $100.3 million, implying 4.4% increase from the year-earlier reported figure.

The Zacks Consensus Estimate for West Pharmaceutical’s first-quarter 2020 top line stands at $490.2 million, suggesting 4.4% improvement from the year-ago quarter.

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