ResMed Inc. RMD reported fourth-quarter fiscal 2015 adjusted earnings of 68 cents per share, which beat the Zacks Consensus Estimate by a couple of cents (6.3%). Adjusted earnings per share (EPS) were also up 3% from the year-ago number. Reported EPS for the quarter was flat year over year at 61 cents.
In fiscal 2015, ResMed’s adjusted EPS improved 4% year over year to $2.57, surpassing the Zacks Consensus Estimate by a nickel.
Revenues in Detail
Revenues increased 9.1% year over year (up 17% at constant exchange rate or CER) to $453.1 million, comfortably exceeding the Zacks Consensus Estimate of $441 million. According to ResMed, exchange rate movement negatively impacted revenues by $32.5 million in the reported quarter.
Fiscal 2015 revenues increased 8% to $1.68 billion, which was better than the Zacks Consensus Estimate of $1.67 billion.
On a geographic basis, revenues in the Americas increased 27% year over year to $273.7 million, while sales in the combined Europe and Asia-Pacific region declined 10% (up 5% at constant exchange rate or CER) to $179.4 million.
The flow generator category globally improved 25% at CER, while masks and other grew 6%. In the Americas, flow generator sales grew 53% to $151.5 million, while masks and other sales increased 6% to $122.2 million.
Revenues, Flow generator sales in combined Europe and Asia-Pacific declined 11% (up 4% at CER) to $121.1 million, while masks and other sales dropped 9% (up 6% at CER) to $58.3 million.
Operational Update
ResMed's adjusted gross margin (excluding the one-time expense related to the SERVE-HF field safety notice) contracted 450 bps to 58.4% due to volatility in foreign exchange rate, an unfavorable geographic and product mix and decline in average selling price.
Selling, general and administration expenses (SG&A) rose 1% year over year to $123.2 million (up 12% at CER), primarily due to higher available employee compensation, the impact of recent acquisitions and the release of contingent consideration in the prior-year quarter. On the other hand, research and development (R&D) expenses declined 10% to $28.5 million (up 5% at CER). This increase at CER was driven by incremental investments across ResMed’s R&D portfolio.
Accordingly, adjusted income from operations (excluding the impact of amortization, restructuring expenses and donations) grew 5.1% to $112.7 million. However, ResMed’s adjusted operating margin contracted 90 bps to 24.9%, from the year-ago quarter.
Financial Update
ResMed exited fiscal 2015 with cash and cash equivalents of $717.2 million, down from $905.7 million at the end of fiscal 2014. For fiscal 2015, the company generated $383.1 million in cash flow from operations, down from $391.3 million cash flow generated in the prior year.
ResMed bought back 2.7 million shares for $152.6 million in fiscal 2015. As of Jun 30, 2015, the company had approximately 15.5 million shares remaining under its authorized stock repurchase program. During its fourth-quarter earnings call, ResMed announced a 7% increase in its dividend to 30 cents per share, payable on Sep 17, 2015.
Our Take
ResMed reported outstanding fourth-quarter 2015 results with the company comfortably beating the Zacks Consensus Estimate on both top and bottom-line fronts. ResMed completed fiscal 2015 with strong double-digit constant currency revenue growth. In the reported quarter ResMed witnessed flow generator growth in excess of 50% in the Americas, while the mask business also delivered strong growth as per management’s expectation.
However, the failure of ResMed’s SERVE-HF clinical trial to meet its primary endpoints was a major setback for the company’s reputation and led to it incurring a one-time charge of $5 million during the quarter.
We believe the company’s recent acquisitions like Curative Medical in China and CareTouch will enable ResMed to expand its customer base across the world map. While Curative Medical will expand its healthcare informatics capability, the latter will boost its respiratory care and sleep apnea product portfolio. We expect this investor-friendly company to capture larger share in the global sleep apnea market, going ahead.
Zacks Rank
Currently, ResMed carries a Zacks Rank #3 (Hold). Some better-ranked players in the medical products sector are LeMaitre Vascular LMAT, Abaxis ABAX and Vascular Solutions VASC. All the three stocks carry a Zacks Rank #1 (Strong Buy).
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