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ResMed share price lower despite delivering strong growth in FY 2020

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The ResMed Inc. (ASX: RMD) share price is dropping lower on Thursday morning following the release of its fourth quarter and full year update.

At the time of writing the sleep treatment-focused medical device company’s shares are down 4% to $26.82.

How did ResMed perform in the fourth quarter?

For the three months ended 30 June 2020, ResMed delivered a 10% constant currency increase in revenue to US$770.3 million. This compares to the analyst consensus estimate of US$752 million.

A key driver of this growth was its Europe, Asia, and Other business, which delivered a 22% increase in revenue during the quarter. Management advised that this was primarily driven by sales across its device product portfolio, including increased demand for ventilators due to COVID-19.

The U.S., Canada, and Latin America business grew revenue by 4% during the quarter. This was thanks to strong sales across its mask product portfolio and increased demand for ventilators. This offset softer than expected mask sales during the period.

Finally, the fledgling Software as a Service business was on form and achieved a 7% increase in revenue. This was due to continued growth in resupply service offerings and stabilising patient flow in out-of-hospital care settings.

This led to the company reporting full year FY 2020 revenue of US$2,957 million, up 15% year on year in constant currency.

What about its earnings?

ResMed reported a further increase in its gross margin during the fourth quarter. It increased 60 basis points to 59.9%, which underpinned a 24% increase in quarterly operating profit to US$243.4 million and a 40% lift in quarterly net income to US$193.3 million.

For the full year, the company’s operating profit grew 24% to US$890.9 million and net income lifted 32% to US$692.8 million.

ResMed’s CEO, Mick Farrell, commented: “Our fourth quarter results reflect the strength and resiliency of our business in today’s uncertain environment. We finished fiscal year 2020 with double-digit revenue growth to US$3.0 billion and operating profit up 24% on a non-GAAP basis.”

“Throughout our fiscal fourth quarter, we continued to support the COVID-19 pandemic response through increased manufacturing of our ventilators, including bilevels, and ventilation mask systems while also supporting our customers with digital health solutions and other innovative tools to enable remote care for patients,” he added.

Outlook.

Mr Farrell appears cautiously optimistic on the company’s prospects in FY 2021.

He said: “Looking ahead, we are confident in our ability to navigate through the ongoing challenging clinical and economic environment to deliver for all our stakeholders. Sleep labs and physician practices are reopening across many geographies, and we’re seeing accelerated adoption of digital health solutions which supports our long-term strategy.”

“We remain vigilant and thoughtful about the outlook for our business as we continue to serve our customers, and we believe our strong foundation will accelerate our growth over the longer term,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended 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.

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