ResMed Inc: 1Q beats – strong and balanced growth

About the author:

Derek Jellinek
Author name:
By Derek Jellinek
Job title:
Senior Analyst
Date posted:
29 October 2018, 11:43 AM
Sectors Covered:

1Q beats top and bottom line

1Q adjusted earnings for ResMed Inc (RMD) were ahead of our and consensus expectations (US$116.3m, +23%; Morgans US$110m and consensus US$111m), equating to EPS of US$0.81 (+23%; Morgans and consensus US$0.80). Adjusted operating profit increased 26% to US$157m, with margins up 243bp year on year to 26.7%.

Revenue also surprised to the upside (US$588.3m, +12%) with strength across the product portfolio, and strength in the Brightree informatics platform (+25% to US$47.5m). Adjusted gross margins were stable (58.3%) and a tad above guidance of 58.1%, supported by ongoing manufacturing/procurement efficiencies, but partially offset by 'normal' ASP declines. Operating cash flow of US$48.1m was impacted by a US$125m tax payment, but supported c6% yoy dividend uplift (US$0.37).

Devices/masks solid; Brightree organic growth to pick up

Despite cycling a tough 1Q18 sales comp (12.3% ex-Brightree), product sales growth was solid in both Americas (US$373.9m +12%) and Rest of World (US$214.4m, +16% in constant currency), with mask and device sales in the former tracking above the market (+9% Americas and +11% Rest of World).

The US$126.3m acquisition of SaaS provider Healthcarefirst (for home health and hospice), supported Brightree's strong growth, with efficiencies /cost savings and new products (now launching an advanced data analytics platform and two new apps) likely to lift organic growth from the high single digits.

Leverage remains supported

The uplift from strong sales into underlying earnings remains impressive, with margins expanding 650bp over the last two years to 26.7%. We view the sustainability of leverage as likely given:

  1. an expanding mask/device portfolio supported by cloud-based connectivity, with upside from improving adherence and automated resupply;
  2. a "settling" reimbursement environment;
  3. stable gross margins;
  4. tech driven op efficiencies across systems and processes; and
  5. a growing connected-care offering with acquisition opportunities in the both the US and Rest of World.

Investment view

ResMed Inc (RMD) remains well positioned, in our view, with continued growth across masks and devices, a solid pipeline of new products and an expanding digital platform helping to drive resupply, low setup costs and improve adherence rates.

We have made modest adjustments to our FY19-21 forecasts and maintain our Add recommendation.

More information

Morgans clients can login to view our detailed report and share price target for ResMed Inc (RMD). Alternatively, please contact your nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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