ResMed share price falls despite Q1 earnings beat

ResMed has released its quarterly update this morning. Here's how it performed.

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The ResMed Inc (ASX: RMD) share price is falling again on Friday.

In morning trade, the sleep treatment company's shares are down 1.5% to $22.15.

Why is the ResMed share price falling?

Investors have been selling down ResMed shares today in response to the release of its first-quarter update.

Here's a summary of how the company performed during the three months ended 30 September compared to the same period last year:

  • Revenue increased by 16% to US$1.1 billion
  • Gross margin contracted 250 basis points to 54.4% (but up modestly on Q4)
  • Income from operations increased 5%
  • Operating cash flow of US$286.3 million
  • Diluted earnings per share of US$1.49

Revenue in the U.S., Canada, and Latin America, excluding Software-as-a-Service, grew by 10% during the quarter. Whereas revenue in Europe, Asia, and other markets, excluding Software-as-a-Service, grew by 18% on a constant currency basis during the period.

ResMed's Software-as-a-Service revenue grew the quickest, increasing by 32%. Management advised that this reflects incremental revenue from the acquisition of Medifox Dan and continued organic growth in the SaaS portfolio.

How does this compare to expectations?

According to a note out of Goldman Sachs, its analysts were pleased with the company's performance during the quarter.

They highlight that ResMed's revenue was in line with expectations and its earnings were ahead of estimates. The broker said:

1Q revenue growth of +15%, in-line vs. cons, as strong mask growth in both US and RoW offsets US device softness impacted by ventilator safety action. […] EBIT/EPS beat +3%/+2% as gross margins modestly improved from 4Q23 (+20bps).

'More confident than ever in our growth strategy'

ResMed's CEO, Mick Farrell, was pleased with the quarter and spoke very positively about the future. He said:

ResMed has started Fiscal Year 2024 with strong revenue growth driven by ongoing patient flow and solid demand across our global sleep and respiratory care markets, alongside increasing adoption of our outside hospital software solutions.

Our ability to meet global demand with technologies, including our best-in-class AirSense 11 platform, has positioned us well to continue growing across global markets, with particularly strong growth this quarter in Europe, Asia, and beyond.

Farrell didn't address the elephant in the room, GLP-1 drugs such as Ozempic, but continues to expect significant growth for the company in the future. He adds:

We've begun rolling out AI-driven software products into our digital health ecosystem, which I believe will create a new class of offerings that will allow us to continue to drive long-term, profitable growth. New patient starts on our physician and provider-facing platform, called AirView, and our patient-facing app, called myAir, show very strong patient flow. With these increasing rates of patients activated into the healthcare funnel, I am more confident than ever in our growth strategy and our ability to achieve our goal of improving 250 million lives in 2025.

Motley Fool contributor James Mickleboro has positions in ResMed. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. 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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