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A closer look at the Resmed (ASX:RMD) profit result
Homegrown medical device company Resmed Inc (ASX: RMD) has updated the market with its second-quarter results, boosting profit 12% year on year.
The market has largely not reacted to today’s update, with the Resmed share price up just 0.70% to $31.18.
Resmed provides new solutions and technologies to treat sleep apnea, chronic obstructive pulmonary disease (COPD) and other chronic diseases.
Philips recall spurs demand
Key financial results from the second quarter ending 31 December include:
- Revenue of $894.9 million, a 12% increase year-on-year (YoY)
- Gross margin of 56.4%, a decrease of 140 basis points (1.4%) YoY
- Net income of $201.8 million, an increase of 12% YoY
- Diluted earnings per share of $1.37
The demand for Resmed’s product remains elevated after competitor Philips issued a recall during 2021.
“We are working every day to meet the extraordinary demand generated by our competitor’s ongoing device recall”
It was an even contribution geographically, with revenue increasing 14% in the Americas and 12% in Europe, Asia and other markets.
From a division lens, new devices sold increased 15% over the quarter. Masks and other consumables grew 9%.
Meanwhile, software-as-a-service revenue increased 9%.
Costs weigh on margins
Management called out elevated freight and manufacturing costs impacting gross profit.
This was somewhat offset by a demand shift to higher-margin products.
“Our global ResMed team continues to find ways to deliver products and solutions to our customers, even amid ongoing supply chain challenges that have limited additional access to critical electronic components”
The gross profit was also offset by relatively lower selling, general and administrative (SGA) expenses.
SGA increased 10%, slower than the 12% revenue growth.
Is now the time to buy Resmed shares?
Resmed reports in US dollars and is also listed in the United States.
Annualising this quarter’s earnings per share of $1.37 gives $6.65 of earnings for the year.
Using its US share price of ~$225, the company is trading on an earnings multiple of approximately 34.
It’s by no means cheap, especially given the low to mid-teens annual growth rate.
But for a long-term investor, with a diversified portfolio, Resmed is a solid core holding.
I personally wouldn’t buy shares (I’m a cheapskate), as there are other companies I’d rather own.
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