The Resmed (ASX:RMD) share price is falling 5% on Monday. Here’s why

Another revenue jump wasn’t enough for investors to pile onto Resmed today.

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Shares in global medical device company Resmed Inc (ASX: RMD) are sliding in early afternoon trade today as the US-based entity released its Q1 FY22 earnings.

At the time of writing, Resmed shares are 5.27% into the red, sinking to $35.21 apiece.

Resmed share price slides despite 20% revenue growth in Q1

During the quarter, Resmed achieved a number of investment highlights, including:

  • Revenue of US$904 million, a 20% year on year (YoY) growth pattern
  • Gross margin of 56%, down from 57.2% year on year
  • Income from operations increased by 21% from the same time last year to US$261.9 million
  • Operating profit gained 18% from the year prior with net income up 14% YoY to US$203.6 million
  • Diluted earnings per share of US$1.39, up from US$1.22 during the same period in FY21
  • Declared quarterly cash dividend of US42 cents per share

What happened this quarter for Resmed?

The company announced its quarterly earnings update with the release of its 10-K form. This is the standard documentation required by US-listed or domiciled companies when reporting earnings.

Resmed came in with a quarter that was ahead of analyst expectations, exhibiting a period of decent growth throughout its income statement.

For instance, revenue grew by 20% YoY to US$904 million, around $46 million above the consensus of analyst estimates for its Q1 sales.

Yet, despite the growth, the company’s gross margins contracted by around 270 basis points to 56%. This was the result of higher shipping and manufacturing costs across the board during calendar year 2021 to date.

Geographically speaking, revenue growth in Europe and Asia was strongest for the company in Q1 with an average of 21% growth in gross earnings in these regions.

This carried vertically down the income statement for Resmed. Its income from operations also expanded by 21% YoY and net income gained 14% during the quarter (20% on non-GAAP accounting figures).

Operating profit also rose around 20% for the quarter when compared to Q1 FY21. However, it was impacted by a payment made to the Australian Tax Office (ATO) of US$284.8 million.

According to its earnings report, this was actually the settlement amount of US$381.7 million net of prior remittances for all prior years since 2009.

As a result of its earnings strength this quarter, the board declared its quarterly cash dividend of US42 cents per share, payable on 16 December 2021.

Although this is in US currency, Australian holders of Resmed’s ASX-listed shares will receive the equivalent in Aussie dollars with an ex-dividend date of 10 November.

What did management say?

Speaking on the announcement, Resmed CEO Mick Farrell said:

Our first-quarter results demonstrate strong performance across our business with double-digit growth in both top-line 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.

He added:

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.

What’s next for Resmed?

Resmed has previously stated a full-year revenue outlook of US$300 million to $350 million.

However, it also concurrently stated on its earnings call that it does not generally give specific ‘quantitative’ guidance.

When probed by analysts, the company reiterated its US$300–$350 million figure without going into too much detail.

Overall, it’s been a choppy year for Resmed shareholders who have still enjoyed a share price increase of 30% since January 1.

Over the last 12 months, the Resmed share price has climbed 26% into the green, roughly in line with the benchmark S&P/ASX 200 Index (ASX: XJO)’s gain of just under 25% in that time.

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The author Zach Bristow has no positions 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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