ResMed reported strong fiscal first-quarter results after the close on Thursday. The beat was driven by strong generator sales in both the U.S. and international markets. At this point, the risks to the story have been broadly discussed and are already discounted in the stock, including the challenging environment next quarter, the implementation of Round 3 in 2016, and the potential bundle pilot program. Going forward, the combination of easy comps, several new ongoing product launches, and a stabilizing market should re-accelerate revenue growth, and we are comfortable getting long the shares.
Specifically, the results this quarter suggest to us that the domestic market is stabilizing, and gives credence to management’s comments that part of the U.S. 6.7% decline last quarter was due to the timing of the launch of the next-generation generator. The AirSense platform, which launched on August 10 (in the middle of this reported quarter), likely helped buoy growth this quarter and should benefit future quarters as well.
Overall, ResMed reported total revenue of $380.4 million, $14.2 million above our estimate of $366 million, and above consensus of $374 million. International sales growth of 11% constant currency was well above our estimate of 5%, and the first double-digit growth rate since fiscal 2013. America’s sales growth of 2.8% was also above our estimate of down 1.4% and significantly better than last quarter’s down 6.7%. Adjusted EPS of $0.59 were a penny above our estimate and the consensus estimate.
Over the last four quarters, ResMed’s results have been fairly volatile (America’s growth has come in at down 2.5%, up 0.4%, down 6.7%, and now up 2.8%), due to a number of moving pieces. Many of these moving pieces should become flushed out of the next several quarters as the industry fully digests and laps the price cuts from last year and ResMed’s new products begin to take back share in the market, likely allowing the stock to move back up.
Further, the long-term opportunity in sleep-disordered breathing remains lightly penetrated, and ResMed’s solutions are both profitable and impactful for durable medical equipment (DME) dealers. We believe ResMed has a reasonable setup for midsingle-digit growth on both a U.S. and worldwide basis long term. The stock is trading at 17.3 times our new 2015 calendar EPS estimate of $2.75 (up 9%).