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ResMed (ASX:RMD) share price on the move after Q1 update

The ResMed CDI (ASX: RMD) share price has launched into the green today after the Australian medical device company delivered its first-quarter FY22 update.

At the time of writing, the ResMed share price is up 6% to $37.80.

The numbers

Key highlights from the first quarter ending 30 September include:

  • Revenue of US$904.0 million, up 20% year-on-year (YoY) and 3% quarter-on-quarter (QoQ)
  • Gross margin of 57.2%, contracting 260 basis points
  • Operating profit of US$261.9 million, up 21% YoY and 8% QoQ
  • Diluted earnings per share of US$1.39
  • Quarterly dividend of US$0.42 per share

ResMed continues to benefit from a product recall by major competitor Philips in addition to the rising demand for sleep and respiratory care devices.

ResMed CEO Mick Farrell noted on the investor call that the recall is “tenfold higher than any in the industry to date”.

Revenue was somewhat offset by a decrease in ventilator income of US$40 million, which surged as the pandemic hit in 2020.

Normalising last year’s revenue without the abnormal pandemic demand, this quarter’s revenue increased 28%.

It was an even geographical contribution, with Europe, Asia, the US and Latin America all growing above 20% with a notable increase in mask product demand.

Software-as-a-Service revenue increased 6% as more patients move towards out-of-hospital care settings.

“Our first-quarter results demonstrate strong performance across our business with double-digit growth in both topline and bottom-line metrics, driven by ongoing high demand for our sleep and respiratory care products, and steady growth across our software-as-a-service business”.

Freight and supply impact more than margins

ResMed’s gross margin was impacted by higher manufacturing and freight costs, in addition to average selling costs.

Supply chain constraints continue to be a concern. Farrell is personally on the phone with suppliers trying to source parts, particularly semiconductor chips.

The issue is best summarised by the following anecdote from Farrell:

“I was on a Zoom call with one of our suppliers, suppliers, suppliers, suppliers, suppliers, suppliers, and I’m not kidding. We achieved our goal with that manufacturer. And we received increased allocation from that manufacturer. But then we face the challenge and are still facing it of working with the 5 customers of theirs, all the way down that chain to get to us to ensure that the agreed upon increased allocation of that component actually gets to ResMed, gets manufactured into ResMed products and then sent to ResMed customers and ultimately to patients”.

The company also noted the rising cost of sea and air freight further impacting ResMed’s ability to achieve soaring demand for its products.

ATO settlement complete

ResMed settled its outstanding tax dispute with the Australian Taxation Office (ATO), resulting in a US$284.8 million payment.

After removing the effect of the one-off payment, operating cash flow was $219.1 million.

My take

Despite the difficult operating conditions and cycling of abnormal pandemic demand, ResMed is still maintaining a strong growth runway.

The market is optimistic the business can overcome these issues, sending the ResMed share price 6% higher.

Overall, I think it’s a great result by a great company.

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