ResMed (NYSE:RMD) reported revenues of $371.9 million and EPS of $0.53 for its fiscal fourth quarter (ended June), above Wall Street consensus estimates of $368 million and $0.49, respectively. Favorable effects from foreign exchange on manufacturing and operating expenses drove a majority of the earnings upside, in addition to a favorable tax rate. Guidance for 9% revenue growth in fiscal 2013 was in line with Wall Street estimates, therefore, a non-event. A newly created dividend and share buy-back program provide support, but were anticipated, hence analyst response to these items was muted. Analysts largely expected the strong quarter, and given the premium valuation of the stock (RMD trades at 20x forward earnings vs. its peers at 12x), the market is likely to take last night’s earnings report in stride.
RMD is facing several business challenges going forward that have potential to negatively impact revenues and earnings. The U.S. government’s competitive bidding process could cut reimbursement in this segment by 30%. While this only represents about 10% of total sales for RMD, if private insurers also cut reimbursement alongside the government, growth next year could be in jeopardy. Competitive pressures may also affect the business outlook, as other sleep apnea equipment manufacturers launching new products may take advantage of a more price sensitive environment. Analyst surveys indicate that RMD has been losing market share to competitors. Tighter restrictions regarding sleep apnea mask replacement (see previous PropThink report) are just beginning to be implemented by Medicare and are expected to weigh on ResMed’s ability to grow. (more…)