The ResMed Inc (ASX: RMD) share price is having a disappointing finish to the week.
In morning trade, the sleep treatment focused medical device company's shares are down 6% to $33.61.
Why is the ResMed share price sinking?
Investors have been selling the company's shares on Friday following the release of a first quarter update that fell short of expectations.
For the three months ended 30 September, ResMed reported a 5% (9% constant currency) increase in revenue to US$950.3 million. This was driven by increased demand for its sleep and respiratory care devices as well as reduced competitive supply.
Revenue in the U.S., Canada, and Latin America, excluding Software-as-a-Service (SaaS), grew by 18% over the prior corresponding period. Whereas revenue in Europe, Asia, and other markets declined by 6% on a constant currency basis. Finally, the company's SaaS business performed positively and reported a 9% increase in revenue due to continued growth in its Home Medical Equipment vertical.
And while ResMed's gross margin increased 90 basis points to 56.9%, higher operating costs offset this and limited its net income growth. ResMed reported a 3% increase in net income to US$210.5 million on a GAAP basis and flat net income at US$222.1 million on a non-GAAP basis.
ResMed's CEO, Mick Farrell, commented:
Our first quarter fiscal year 2023 results demonstrate strong sales growth in the Americas and solid overall performance for our businesses. Our global ResMed team continues to power through the dynamic supply chain environment to increase production volumes and deliver more products and software solutions into the hands of people who need them. During the quarter we saw strong customer uptake of our reengineered AirSense 10 Card-to-Cloud device. We also continued to increase our access to semiconductor communications chips, allowing us to produce more of our industry-leading, 100%- connectable platforms.
Mr Farrell also spoke positively about the medium term. He added:
Looking ahead, we remain focused on delivering lifesaving therapy solutions and driving accelerated adoption of digital health in sleep apnea, respiratory care, and out-of-hospital care. I am confident in our growth strategy and our ability to accelerate toward our goal of improving 250 million lives in 2025.
How does this compare to expectations?
As you might have guessed from the ResMed share price performance, the market was expecting a stronger result.
According to a note out of Goldman Sachs, the company achieved its top line estimates but missed on the bottom line. It commented:
1Q revenue growth of +9% in-line as strength in US offsets softness in RoW. […] Earnings miss -2% as gross margin expansion of +40bps mitigated by opex growth (EBIT margin -50bps). Gross margins improved (+40bps non-GAAP; +90bps GAAP) mainly due to an increase in ASP, partly offset by less favourable mix and FX. SG&A grew +16% (i.e. ahead of sales once more), largely due to employee-related expenses and travel. As % of revenue, SG&A increased from 19.5% to 20.4%. Overall, non-GAAP earnings were flat on EBIT +4%. […] Ability to capitalise on recall key to performance through FY23; no guidance provided.
