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Here’s Why ResMed (ASX:RMD) Shares Are Down 12% On Q2 Results

The ResMed Inc (ASX: RMD) share price is down nearly 11% after announcing its result for the second quarter of FY19.

ResMed Inc is a United States based business that develops and manufactures medical devices to help people with sleep apnea, chronic obstructive pulmonary disease (COPD) and other chronic diseases. ResMed, which is short for Respiratory Medicine, was founded in 1989 by Dr Peter Farrell and now helps customers & patients in over 120 countries.

ResMed second quarter FY19 results

For the three months to December 31, 2018 ResMed revealed that revenue increased by 8% to US$651.1 million, which was 9% higher in constant currency terms.

The ResMed gross profit margin grew by 70 basis points, or 0.7%, to 58.9%.

Net operating profit grew by 8% and underlying (non-GAAP) profit increased by 15%. That resulted in profit per share (EPS) of $0.86 and non-GAAP EPS of $1.00.

ResMed CEO Mick Farrell reminded investors of the progress this quarter:

We further expanded our software and device ecosystems, through the acquisitions of MatrixCare and Propeller Health.”

Mr Farrell also said that its new AirFit F30 and AirFit N30i masks have been launched in many markets, and mask sales are growing well globally.

Looking at individual marks, revenue from the Americas excluding software as a service (SaaS) grew by 9% thanks to “strong” mask sales and device product portfolios.

Revenue from Europe, Asia and other markets grew by 1% with French and Japanese customers completing their connected device upgrade programs, other market device sales “grew well”.

Software as a Service revenue increased by 63% compared to the Q2 result of FY18. Continued growth from Brightree services, as well as the contribution from MatrixCare and HEALTHCAREfirst, were the causes of the large increase.

During the quarter the company also announced the acquisition of Propeller Health in the quarter, a digital therapeutics company providing connected health for people with COPD and asthma, for $US225 million. This deal closed on 7 January 2019.

Is RedMed a buy?

Clearly investors didn’t like what they saw with the share price down over 12% in response to the news.

The disappointing 1% revenue growth of non-Americas markets wasn’t enough to justify the previous share price.

ResMed is now valued at under 30x FY18’s underlying earnings. It’s difficult to say a business growing profit at 8% is worth a high price, so I wouldn’t call it a clear buy today.

If you’re looking for ASX shares with growing global earnings then the two businesses mentioned in the free report below could be worth consideration.

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