ResMed (ASX:RMD) share price jumps 7% on Q1 earnings beat

ResMed’s shares are ending the week strongly…

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The ResMed Inc. (ASX: RMD) share price is on the move on Friday morning.

At the time of writing, the sleep treatment focused medical device company’s shares are up 7.5% to $38.41.

This means the ResMed share price is now 40% in 2021.

Why is the ResMed share price rising?

Investors have been bidding the ResMed share price higher this morning following the release of its first quarter update. Here’s a summary of how it performed:

  • Revenue increased 20% over the prior corresponding period to US$904 million (19% on a constant currency basis)
  • Gross margin down 230 basis points to 56%
  • Income from operations increased 21% to US$261.9 million
  • Net income up 14% to US$203.6 million
  • Diluted earnings per share up 14% to US$1.39

What happened during the quarter?

For the three months ended 30 September, ResMed reported a 20% increase in revenue to US$904 million. This was driven by strong demand for its sleep and respiratory care devices and increased demand following a recent product recall by one of its competitors. This was partially offset by decreased COVID-19 related demand for ventilators.

This top line result was ahead of the market consensus estimate of revenue of ~US$860 million.

One slight disappointment was its softening gross margin. Management advised that this decreased by 230 basis points due to higher manufacturing costs, incremental freight costs, and lower average selling prices.

Nevertheless, this didn’t stop ResMed from beating the market’s earnings expectations during the quarter. ResMed reported GAAP earnings per share of US$1.39 per share for the period, up 14% on the prior corresponding period. This was 15 cents per share ahead of the market consensus estimate. Which goes some way to explaining why the ResMed share price is performing so positively today.

Management commentary

ResMed’s CEO, Mick Farrell, was pleased with the company’s performance during the first quarter.

He said: “Our first-quarter results demonstrate strong performance across our business with double-digit growth in both topline and bottom-line metrics, driven by ongoing high demand for our sleep and respiratory care products, and steady growth across our software-as-a-service business,”

“It is through the extraordinary efforts of our global ResMed team that we were able to deliver products and solutions to our customers amid unprecedented supply chain challenges that continue to restrict access to critical electronic components. As we navigate supply limitations and are forced to allocate products, we continue to ensure priority for highest-acuity and highest-need patients first, as well as working with physicians, providers, and community systems to maintain a sustainable flow of medical devices and digital health solutions to patients who need care.”

Mr Farrell appears positive on the company’s long term prospects.

He commented: “Despite constantly evolving market dynamics, we continue to pivot to meet the needs of our stakeholders, driving sustainable long-term growth, and ensuring that we are investing strongly in medical device research and development, as well as digital health innovation that will unlock value for all of our customers. I’m incredibly proud of our global teams that are working with providers and physicians in the most unusual times across 140 countries, to get products directly into the hands of patients who need our solutions most.”

No guidance was provided for the remainder of the half or full year.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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