ResMed Posts In-line Earnings but Misses on Revs - Analyst Blog
April 24 2014 - 3:00PM
Zacks
ResMed Inc.(RMD)
reported third-quarter fiscal 2014 (ended Mar 31, 2014) earnings
per share of 63 cents in line with the Zacks Consensus Estimate.
Results, however, surpassed the prior-year quarter’s earnings of 58
cents per share, registering an increase of 8.6% year over
year.
Revenues in
Details
Revenues grew 3.7% year over year
to $397.8 million but were below the Zacks Consensus Estimate of
$399 million.
On a geographic basis, revenues in
the Americas grossed $216.1 million, flat with the year-ago quarter
number, while sales outside the Americas increased 8% year over
year (6% on a constant currency basis) to $181.6 million. Global
revenues were driven by constant currency growth in the mask
category of 14%.
Europe experienced another quarter
of steep regional growth, along with robust sales recorded in major
markets like the U.K., France and Germany and some emerging
markets.
The flow generator category
recorded nominal growth of 2% across Europe, Asia-Pacific and Rest
of world in the reported quarter. ResMed is expecting growth in
this category in the upcoming sequential quarter based on the
launch of its respiratory care platform in these aforementioned
regions.
Operational
Update
ResMed’s gross margin was 63.3% in
the reported quarter, reflecting an expansion of 90 basis points
(bps) year over year, on account of favorable currency movements, a
healthy product mix and strong manufacturing efficiencies. However,
this rise was partially offset by a decline in average selling
prices (ASPs).
Research and development expenses
were $29.5 million or 7.4% of revenues, compared with $31.2 million
or 8.1% of revenues in the prior-year quarter.
Selling, general and administration
expenses (which accounted for 28.9% of revenues compared to 28.6%
in the year-ago quarter) amounted to $115.1 million, up 4.9% year
over year.
Accordingly, income from operations
came in at $107.2 million, reflecting an upside of 8.6% from the
prior-year quarter. Thus, the company recorded operating margin of
26.9%, up 120 bps from third- quarter fiscal 2013.
Financial
Updates
ResMed exited the third quarter of
fiscal 2014 with cash and cash equivalents of $938.6 million
compared with $876 million at the end of Jun 30, 2013.
The company generated $101.1
million in cash flow from operations in 1Q14, reflecting strong
underlying earnings and effective working capital management.
Moreover, capital expenditure was $17.8 million during 1Q14,
resulting in free cash flow amounting $83.3 million. ResMed also
repurchased 1.6 million shares for $72.5 million in the reported
quarter. At the end of the quarter, the company still had 19.1
million shares remaining under its authorized buyback program.
For fiscal 2014, ResMed expects its
gross margin to be in the range of 61% – 63% assuming current
exchange rates.
Our Take
ResMed’s third-quarter fiscal 2014
results were overall unimpressive with the company posting in-line
earnings and a revenue miss. It is currently facing challenges like
reimbursement pressure and competitive pricing activities to deal
with competitors in the U.S. market, particularly in the flow
generator space. Additionally, a slowdown in the market demand
along with foreign currency headwinds can also act as a deterrent
to growth, going forward. However, with growing numbers in terms of
new patients and resupply to installed base of patients, we believe
the U.S. market environment is gradually improving.
Moreover, new product launches, a
strong product pipeline and robust growth in the European and
emerging markets as well are expected to likely boost investor
confidence in the near term.
ResMed currently carries a Zacks
Rank #4 (Sell).Some better-ranked stocks in the broader healthcare
sector that warrant a look are Enzymotec Ltd.
(ENZY), Myriad Genetics Inc. (MYGN) and
Amgen Inc. (AMGN). Enzymotec and Myriad Genetics
sport a Zacks Rank #1 (Strong Buy) while Amgen carries a Zacks Rank
#2 (Buy).
AMGEN INC (AMGN): Free Stock Analysis Report
ENZYMOTEC LTD (ENZY): Free Stock Analysis Report
MYRIAD GENETICS (MYGN): Free Stock Analysis Report
RESMED INC (RMD): Free Stock Analysis Report
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