The ResMed Inc (ASX: RMD) profit jumped 40% in its FY20 result due to high ventilator and ventilation mask demand. The ResMed share price is expected to open lower.
ResMed is one of the businesses that manufactures the breathing apparatus used by hospitals to help patients who are suffering seriously from COVID-19.
ResMed’s FY20 profit numbers
ResMed announced today that in the fourth quarter of FY20 its revenue rose by 9% to US$770.3 million. Its non-GAAP profit margin improved by 60 basis points (0.60%) to 59.9%. A higher profit margin means it’s more profitable with its revenue, more revenue is turned into profit.
FY20 fourth quarter net operating profit increased by 84% to US$223.2 million. Non-GAAP net operating profit increased 24% to US$243.4 million.
This final quarter contributed to a strong 2020 result. Revenue rose by 13% to US$2.96 billion. The gross margin improved by 80 basis points (0.80%) to 59.8%.
Net operating profit increased by 40% to US$809.7 million and non-GAAP income from operations rose 24% to US$890.9 million.
What caused the large rise in profit?
The main area of growth was revenue in Europe, Asia and other markets in the fourth quarter where revenue increased 22% on a constant currency basis mainly due demand for ventilators due to COVID-19. Software as a service (SaaS) revenue rose 7% in the fourth quarter. Costs reducing by 4% also helped.
ResMed CEO Mick Farrell said: “Our fourth quarter results reflect the strength and resiliency of our business in today’s uncertain environment.
“We continued to support the COVID-19 pandemic response through increased manufacturing of our ventilators, including bilevels and ventilation mask systems while also supporting our customers with digital health solutions and other innovative tools to enable remote care for patients. Looking ahead, we are confident in our ability to navigate through the ongoing challenging clinical and economic environment to deliver for all our stakeholders. Sleep labs and physician practices are reopening across many geographies, and we’re seeing accelerated adoption of digital health solutions which supports our long-term strategy.”
The ResMed board decided to declare a quarterly cash dividend of US$0.39 per share.
ResMed has had a very strong year – its share price is up 27% since 1 January 2020. I think there could be a danger of some investors expecting that the current level of ventilator demand will continue indefinitely. Unless COVID-19 is here forever, I think hospital needs will taper off during 2021.
I’m not sure what the right price to pay for ResMed is due to that high level of demand uncertain, though its SaaS revenue growth will help on the other side of COVID-19. I’d call it a cautious buy today, but there are other ASX growth shares I’d buy first such as Bubs (ASX: BUB) which are much smaller with more long term growth potential.