Australia | 2:50 PM
RedMed posted a stronger than expected first quarter, although various contingencies were reflected in the result and the subsequent outlook.
- ResMed’s Q1 revenues, earnings and margins beat expectations
- Cost delays nonetheless undermine the result
- New devices offer earnings upside
- Future Philips return and GLP-1s continue to weigh on sentiment
By Greg Peel
Dual-listed sleep apnoea device manufacturer ResMed ((RMD)) posted a first quarter FY27 revenue increase of 6%, 2% ahead of expectations. Adjusted earnings increased 14%, 9% ahead, while profit rose 12%, 9% ahead.
Gross profit margin expanded 50 basis points to 62.5%, 140bp ahead of expectation, driven by productivity improvements, manufacturing efficiencies and a favourable product mix.
It was, at first glance, a strong result. However, there were several contingencies.
Sales of masks were particularly strong, growing 10% in the US and 11% across rest-of-world (RoW). In sleep devices, RoW revenue increased by 13%, although part of this reflected a fleet renewal in France that management expects to conclude in the second half and thereatfer becomes a headwind.
In the US, sales benefited from an upswing in demand ahead of coming price increases and volume-based customer rebates.
Earnings were supported by a gain on the Apnimed IPO, ResMed’s official online store, along with lower tax and accelerated share buybacks.
With regard margins, much of the upside reflected the timing of supply chain costs rather than improved pricing, meaning some costs will shift into subsequent quarters.
US manufacturing start-up costs (expansion of the Indiana plant), have been shifted into the second quarter, benefiting first quarter margins.
Free cash flow declined -10% to 89% in the first quarter, from 101% in FY26 and 118% in FY25, reflecting inventory investment and higher cash taxes, while more than US$1bn was returned to shareholders through dividends and buybacks.
Guidance Unchanged
Despite the strong first quarter, the above contingencies have led management to retain prior FY27 guidance, along with ongoing input cost inflation, overall higher second quarter costs, and moderating RoW device growth.
Management noted the midpoint of guidance remains the most likely outcome.
Revenue now assumes a FX headwind of -60bps versus -50bps prior, implying a slight operational upgrade.
Key swing factors are pricing realisation with global roll-out of price increase and marketing success, offset by second half headwinds from French fleet renewal conclusion, inflation impacts on customers and around a -US$75m Astral filed safety action revenue impact.
Outlook
Looking ahead, Ord Minnet believes new mask launches and strong flow generator set-ups in Europe and the US should support revenue growth in FY27. Ord Minnett also sees ResMed’s net cash approaching US$1bn by the end of FY27, providing scope for additional share buybacks or dividends.
As implied by management's unchanged guidance, Ord Minnett expects the pace of earnings per share growth to slow in the remaining quarters of FY27 due to higher cost of goods sold and operating expenditure, alongside reduced accretion from buying back shares at a higher share price.
The underlying business remains robust, suggests Jarden, with US sleep device growth of 8%. Jarden believes inflationary pressures should be contained via pricing increases and efficiency measures.
ResMed continues to generate strong cashflow, which is funding an ever-increasing buy-back.
Citi is forecasting core FY27 sales growth of 5.5% versus the 5-7% guided range. If we were less conservative with some of our estimates, says Citi, perhaps seeing mask growth continue in the double digits, this would push Citi’s earnings per share estimates above the top end of the guided range.
Citi is cautiously optimistic.
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