) posted adjusted earnings per share (EPS) of 62 cents in the
fourth quarter of fiscal 2013, edging past the Zacks Consensus
Estimate by a penny. The results were also better than the
year-ago EPS of 53 cents.
On a reported basis, fourth-quarter net income was $73 million
(or 50 cents per share), lower than $76.8 million (or 53 cents
per share) in the prior-year quarter. The decline was attributed
to certain education, research and settlement expenses.
Fiscal 2013 adjusted EPS was $2.22, better than $1.71 in fiscal
2012. However, it missed the Zacks Consensus Estimate of $2.25.
Revenues improved 11% year over year (up 11% at constant exchange
rates or CER) to $414.6 million, a record high for the company.
The top-line beat the Zacks Consensus Estimate of $410 million.
Growth was led by market expansion and improved worldwide
Revenues in the fiscal year improved 11% (up 12% at CER) to
$1,514.5 million, another milestone for ResMed. It also surpassed
the Zacks Consensus Estimate of $1,511 million.
Quarter in Detail
Riding on the back of increasing awareness regarding
sleep-disordered breathing and a vastly under-penetrated and
growing sleep-disorder breathing market, revenues in the Americas
shot up 11% to $230.3 million whereas revenues outside the
Americas increased 12% (up 11% at CER) at $184.3 million. Growth
in the overseas market was on account of strong contributions
from Germany, U.K., France and the Nordic region in Europe. The
solid performance in Asia-Pacific region was led by stellar
contributions from the high focus Japanese market along with
strong sales in emerging nations like India and China.
At CER, worldwide flow generator sales increased 13% year over
year, while masks and other increased 8%. The company reported
domestic flow generator sales of $104.7 million in the quarter,
up 16% year over year due to robust sales of Automatic Positive
Airway Pressure (APAP) systems and Bi-Level device. Masks and
other sales were $125.6 million in the Americas, up 7% year over
year, on the back of higher sales of the mask product range and
persistent growth in accessories.
Outside the Americas, flow generator sales were $124.8 million,
up 13% (up 11% at CER) year over year. Masks and other sales
outside the Americas increased 11% (up 11% at CER) to $59.5
Gross profit in the reported quarter increased 14.7% to $259.8
million leading to a considerable 180 basis points (bps)
expansion in gross margin to 62.7%. Although ResMed faced lower
average selling price (ASP) in the quarter, gross margin improved
on account of favorable product mix towards higher-margin flow
generators and robust accessory sales coupled with higher
manufacturing and operating efficiency.
Selling, general and administrative, and research and development
expenses increased 9% (up 9% at CER) to $115.1 million and
spurted 12% (up 14% at CER) to $31.4 million, respectively.
Nevertheless, operating margin expanded about 240 bps to 27.4% in
ResMed exited the fiscal with cash and cash equivalents of $876
million, up 8.2% from fiscal 2012. Cash flow from operations
surged 27.7% to $123.9 million in the quarter, another record for
ResMed. This depicts solid capital management fundamentals.
Capital expenditures were $16 million in the quarter.
ResMed repurchased 1.5 million shares for $72.7 million in the
quarter with 4.5 million shares left under the current repurchase
authorization. In fiscal 2013, ResMed purchased about 4.3 million
shares for $188 million. Additionally, the Board declared a
quarterly dividend of 25 cents per share, reflecting a 47% hike
from the earlier dividend.
We are encouraged by ResMed's solid fourth quarter results, that
beat the Zacks Consensus Estimates on both fronts. The company
beat Zacks Consensus Estimate for EPS for the seventh straight
quarter. Apart from increased sales and considerable margin
expansion, a decline in tax rate supported the huge EPS
Despite the contagion of economic problems in Europe, the
company's solid underlying growth in the region is encouraging.
Moreover, penetration into the untapped Asia-Pacific market
continues to drive growth. Footprint expansion in emerging
markets presents another high growth avenue. With a healthy
portfolio of well-regarded solutions to cater to the growing
sleep-disorder market, there is no dearth of positive catalysts
However, we are wary about lower ASP that might hurt margin in
fiscal 2014. The competitive bidding process might further worsen
the pricing pressure for ResMed. Of late, the company has also
witnessed heightened competitive pressure
The stock currently carries a Zacks Rank #3 (Hold). While we
remain on the sidelines for ResMed, other stocks such as
LeMaitre Vascular, Inc
) appear impressive. While Alere carries a Zacks Rank #2 (Buy),
the rest are Zacks Rank #1 (Strong Buy) stocks.
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