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ResMed (ASX:RMD) share price in focus after FY24 Q1 update

After plenty of volatility for the ResMed Inc (ASX: RMD) share price, the healthcare company has released its FY24 first quarter update.

ResMed is a company that is focused on helping people treat and improve their sleep apnea. It has been suffering as investors worry about what weight loss drugs might do to long-term demand for ResMed’s services.

ResMed share price

ResMed FY24 first quarter update

The healthcare business revealed that revenue had increased by 16% to $1.1 billion, which represented a 15% rise on a constant currency basis. Software as a service revenue increased by 32%, thanks to organic growth and its MEDIFOX DAN acquisition.

It wasn’t good news for the gross profit margin, which saw a decline of 250 basis points (2.50%) to 54.4%. The underlying (non-GAAP) gross profit margin fell by 160 basis points (1.60%) to 56%.

ResMed explained that this profitability decrease was “mainly due to costs associated with a field safety notification on Astral devices and higher component and manufacturing costs”.

Operating profit, the income from operations, increased by 5% to US$289 million, while the underlying operating profit (non-GAAP) grew 10% to US$318.8 million.

Profit / earnings per share (EPS) grew 4% to US$1.49, while underlying (non-GAAP) EPS rose 9% to US$1.64. This is good for supporting the ResMed share price.

The business generated operating cash flow of $286.3 million and it declared a quarterly cash dividend of $0.48 per share.

Management commentary

The ResMed CEO Mick Farrell said:

ResMed has started Fiscal Year 2024 with strong revenue growth driven by ongoing patient flow and solid demand across our global sleep and respiratory care markets, alongside increasing adoption of our outside hospital software solutions.

Our ability to meet global demand with technologies, including our best-in-class AirSense 11 platform, has positioned us well to continue growing across global markets, with particularly strong growth this quarter in Europe, Asia, and beyond. We’ve begun rolling out AI-driven software products into our digital health ecosystem, which I believe will create a new class of offerings that will allow us to continue to drive long-term, profitable growth. New patient starts on our physician and provider-facing platform, called AirView, and our patient-facing app, called myAir, show very strong patient flow. With these increasing rates of patients activated into the healthcare funnel, I am more confident than ever in our growth strategy and our ability to achieve our goal of improving 250 million lives in 2025.

Final thoughts on the ResMed share price

The business has been through plenty of pain and it’s down another 2% in response to this update. Investors may be being too harsh on ResMed shares, but it’s hard to say at this stage, particularly with the added complication of higher interest rates.

While it has dropped off significantly in the last few months, I’m not looking to add it to my portfolio because of the level of uncertainty about the long-term. I don’t mind short-term volatility, but there’s a long-term question mark about a large hit to demand. But, ResMed may prove itself to be the best way for patients to help their sleep apnea.

There are other ASX growth shares I’d rather invest in which have an easier path to growth.

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