The Motley Fool

ResMed share price expected to sink lower after revenue and earnings miss

The ResMed Inc. (ASX: RMD) share price will be on watch on Friday after the sleep treatment-focused medical device company’s second quarter result fell a touch short of the market’s expectations.

At the time of writing its US-listed shares are down 5.5% in after hours trade.

What happened in the second quarter?

For the three months ended December 31, ResMed delivered revenue of US$651.1 million, which was an increase of 8% (9% on a constant currency basis) on the prior corresponding period. GAAP diluted earnings per share came in at 86 U.S. cents.

According to the Bloomberg consensus estimate, the market had been expecting earnings per share of 93 U.S. cents on quarterly revenue of US$666.98 million.

Nonetheless, ResMed CEO Mick Farrell appeared to be pleased with the company’s performance during the quarter.

He said: “We had a solid quarter with top-line growth and gross margin expansion, as well as continued fiscal discipline to drive leverage and improved operating profit.”

ResMed’s gross margin expanded 70bps to 58.9% during the quarter.

Mr Farrell added: “Our new AirFit F30 and AirFit N30i masks have been launched in many markets, and mask sales are growing well globally. During the quarter we further expanded our software and device ecosystems, through the acquisitions of MatrixCare and Propeller Health, to provide digital health solutions to millions more people worldwide.”

He expects this to empower “people to live healthier and happier lives where they live, and we are doing this by providing innovative software, services, and solutions to improve outcomes, create efficiencies, and reduce overall healthcare system costs.”

This solid second quarter means that ResMed posted US$1,239.4 million in revenue and non-GAAP income from operations of $338.1 million during the first half. This was a 10% and 20% increase, respectively, on the prior corresponding period.

Should you invest?

I suspect that ResMed’s shares were priced for outperformance this quarter, which could put pressure on them today.

If there is a meaningful pullback then I would suggest investors consider it a buying opportunity for a buy and hold investment.

After all, I think ResMed is one of the highest quality companies on the ASX along with Cochlear Limited (ASX: COH) and CSL Limited (ASX: CSL).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.