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ResMed’s March Quarter Impacted by Inflation in Input Costs and Rising Transportation Costs
- Revenue up 12% to US$864 million and operating income up 5% to US$253 million
- Earnings and earnings beat Bloomberg consensus estimates
- Gross margin down 1.4%
- Selling, general and administrative expenses up US$22 million, or 14%, to US$182 million
- Cash flow impacted by $285m ATO settlement
- Balance sheet remains strong with US$1.9 billion in cash and drawdown availability
- Management is confident that incremental revenue growth will pick up in FY23
ResMed Inc (“ResMed” or the “Group”) is a global medical device company that develops, manufactures, distributes and markets medical devices. ResMed also develops cloud-based software applications that diagnose, treat, and manage respiratory disorders, including sleep-disordered breathing, chronic obstructive pulmonary disease, and neuromuscular disease. Resmed’s comprehensive out-of-hospital software platforms are designed to help caregivers and healthcare professionals keep people healthy at home or in the care setting of their choice. The product suite includes airflow generators, diagnostic products and mask systems that are expected to help 250 million lives in 140 countries by 2025.
Soft gross margin in March quarter FY22
ResMed increased revenue 12% to $864 million for the quarter, compared to the March 2021 quarter, and operating income increased 5% to $253 million. Non-GAAP diluted earnings per share increased slightly from $1.30 per share to $1.32 per share. These numbers are lower than market expectations, based on the large Bloomberg consensus estimates. The market expected stronger revenue growth as ResMed would benefit from the recall of a competing product in the US non-invasive ventilator market segment. This market share gain was lower than investors’ expectations and can be attributed to continued shortages in semiconductor supply. Semiconductors or microchips are an essential component of ResMed’s medical devices, including ventilators.
The other disappointing aspect of the March quarter result was the 1.4% contraction in gross margin to 56.8% in March 2022 from 58.2% in March 2021. The decline in margin is attributable to higher transport and manufacturing costs, partially offset by an increase in the average selling price. prices. A 12 USD/Euro12 surcharge introduced in January 2022 has not been sufficient to offset the cost inflation and increased freight charges that have emerged since the onset of the global COVID pandemic. Selling, general and administrative expenses increased 14% to $182 million, compared to the March 2021 quarter. This is an increase of $22 million from a year ago. It is clear that ResMed has not been able to avoid the inflationary input cost pressures faced by manufacturers in all regions of the world in recent times.
$285m ATO settlement impacts cash flow
Cash flow from operating activities of US$272 million, for the 9 months to March 31, 2022, represents a decrease of US$238 million from the US$510 million generated in the corresponding 9 months previous ones. The significant decline is primarily due to a US$285 million cash settlement with the Australian Taxation Office during the March quarter. This is the latest payment due to the ATO and follows payments of US$97 million in previous reporting periods, bringing the total amount to US$382 million. The settlement relates to transfer pricing irregularities between 2009 and 2018. The impact on profit had already been recognized in the previous financial year.
ResMed maintains a strong balance sheet and, as of March 31, had US$1.6 billion available for drawdown, plus cash and cash equivalents of US$295 million.
Management continues to reference the extraordinary demand for sleep and respiratory care products worldwide, with double-digit revenue growth expected for respiratory care products and high single-digit growth in its software-as-a-service business segment.
Despite the uncertainty in the industry-specific and macro-economic environment of late, demand from patients and healthcare providers remains resilient. Management remains confident that as supply chain logistical constraints, including semiconductor component shortages, are overcome, the additional lost revenue will be recovered in FY23 and beyond.
This Post Market Wrap is presented by Kodari Titleswritten by Michael Kodari, CEO of KOSEC.