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ResMed (RMD) Beats Earnings and Revenue Estimates in Q2

ResMed Inc.RMD announced second-quarter fiscal 2017 adjusted earnings per share (EPS) of 73 cents, consistent with the prior-year quarter level. However, the quarter's earnings surpassed the Zacks Consensus Estimate by 4.3%.

Including one-time items, ResMed reported EPS of 54 cents in the quarter, down 20.5% year over year.

Revenues in Details

Revenues in the reported quarter increased 16.6% year over year (up 18% at constant exchange rate or CER) to $530.4 million. The figure also surpassed the Zacks Consensus Estimate of $522 million.

ResMed Inc. Price, Consensus and EPS Surprise

ResMed Inc. Price, Consensus and EPS Surprise | ResMed Inc. Quote

On a geographic basis, revenues in the Americas rose 21% year over year to $326.8 million, primarily on the back of Software-as-a-Service revenues from Brightree and 13% growth in device sales. Excluding Brightree's contribution, revenues in the Americas were up 9% to $293.0 million. On the other hand, sales in the combined EMEA and APAC region improved 13% at CER to $203.6 million.

Adjusted gross margin has expanded 17 basis points (bps) year over year to 58.3% in the reported quarter. Selling, general and administrative expenses were up 17.8% year over year to $139.3 million, while there was a 31.8% increase in Research and Development expenses to $38.1 million. This led to a 20.5% rise in adjusted operating expenses, which amounted to $177.4 million. Accordingly, adjusted operating margin in the quarter contracted 92 bps to 24.8%.

Financial Update

ResMed exited second-quarter 2017 with cash and cash equivalents of $788.1 million, compared with $731.4 million in the first quarter.

Year to date, the company generated $206.1 million of cash flow from operations, down 26.4% from the year-ago figure, displaying weak underlying earnings and a decline in net working capital balances.

Concurrent to its second-quarter earnings release, ResMed announced a quarterly dividend of 33 cents per share, representing a 10% increase from the company's prior payout. The dividend will be paid on Mar 16, to shareholders of record as on Feb 9.

During the reported quarter, ResMed did not repurchase any shares, in sync with its decision of a temporary suspension of the buy-back program due to the company's recent acquisition.

Guidance

The company has reiterated its gross margin guidance at the range of 58%-60% for the rest of fiscal 2017, considering the current exchange rates and trends in product and geographic mix.

Further, management expects SG&A expenses, as a percentage of revenues, to be in the band of 27%-28%. R&D expenses, as a percentage of revenues, are projected within 7%-8% for fiscal 2017. This reflects marketing expenses associated with product launches along with the ongoing legal expenses.

Our Take

We are impressed with ResMed's fiscal second-quarter numbers, which have outpaced the Zacks Consensus Estimate in terms of both earnings and revenues. On a year-over-year basis, 18% of constant currency revenue growth was driven by its Brightree software offerings and strong device sales.

Among the various developments in the quarter, the company received FDA clearance for the world's smallest travel CPAP, formed a new venture - SleepScore Labs - to focus on consumer sleep wellness, attained the milestone of one billion nights of sleep data and successfully demonstrated that the use of myAir device significantly improves patient adherence to sleep therapy in Europe. The recently announced hike in dividend payment further boosts investors' confidence in the stock.

However, challenges like competitive bidding and reimbursement issues continue to plague the stock. Additionally, foreign exchange movements dented second-quarter earnings by 3 cents per share, reflecting the unfavorable impact of the weaker Euro and stronger Australian dollar relative to the U.S. dollar.

Zacks Rank & Key Picks

ResMed carries a Zacks Rank #4 (Sell). Better - ranked medical stocks are Cardiovascular Systems, Inc. CSII , Neogen Corporation NEOG and OraSure Technologies, Inc. OSUR . Cardiovascular Systems sports a Zacks Rank #1 (Strong Buy) while Neogen and OraSure carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Cardiovascular Systems rallied 174.7% in the past one year, way higher than the S&P 500's 20.6%. It has a positive average earnings surprise of 31.8%.

Neogen gained 22.7% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth of 16.7% for the next five years compared to the industry average of 15.2%.

OraSure Technologies surged 51.2% in the last one year in comparison to the S&P 500. The company has a stellar four-quarter average earnings surprise of over 100%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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