The ResMed Inc (ASX: RMD) share price is ending the week deep in the red.
In late morning trade, the sleep treatment focused medical device company’s shares are down 5% to $28.87.
This is an improvement from early on when the ResMed share price was down as much as 6.5% to $28.36.
Why is the ResMed share price sinking?
Investors have been selling down the ResMed share price after the company’s third quarter update fell short of the market’s expectations.
According to the release, the company delivered a 12% increase in revenue to US$864.5 million, a 5% lift in operating income to US$234.3 million, and a 2% rise in its earnings per share up 2% to US$1.32.
Management advised that its top line growth was driven by increased demand for its sleep and respiratory care devices. Whereas its softer profit growth reflects margin pressure from higher freight, manufacturing, and employee costs.
How does this compare to expectations?
As mentioned above, the ResMed share price is falling today after its quarterly result fell short of expectations.
Goldman Sachs was quick to respond to the result, highlighting that the company’s revenue and earnings per share missed by 5% and 9%, respectively.
It commented: “3Q22 revenue came in -5% below consensus (Visible Alpha Consensus Data), driven primarily by a -15% miss in ex-US devices (largely a reflection of persisting supply chain challenges, which were well flagged in advance but clearly still underestimated).”
“Gross margins declined (-150bps non-GAAP; -140bps GAAP) as widely anticipated freight and supply pressures continue to impact the business. These cost pressures were exacerbated by an increase in SG&A expenses above and beyond revenue growth, in contrast to prior quarters (SG&A increased +17% CC, above Group revenue of +14% CC).”
At present, Goldman Sachs has a buy rating and $35.80 price target on the ResMed share price. However, this could change in the coming days once it has fully absorbed this update.