ResMed's profit down despite revenue rise, page-2

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Sleep treatment and home health medical device and technology business ResMed Inc.(CHESS) (ASX: RMD) this morning posted an adjusted net income of US$87.7 million on revenues of US$465.4 million for the quarter ending September 30 2016.
The adjusted income was up 4% over the prior corresponding quarter with the reported (non-GAAP) numbers commonly being adjusted to account for the substantial impact of the group’s $US800 million Brightree Inc. acquisition that was completed over the third quarter of financial year 2016.
The Brightree acquisition is already helping lift gross margins that hit 58.9% for the quarter when excluding a one-off $5.1 million expense relating to a battery problem in its Astral ventilation device. This is an (adjusted) 70 basis point lift over the prior quarter and substantial lift over the prior corresponding quarter. The main driver of the overall margin lift being the impact of Brightree, which is reported to be delivering double-digit growth and high recurring revenues as a standalone business.
Wall Street analysts are all schooled to have a laser like focus on the margins of medical device business as a lead indicator of the company’s underlying health. Rising margins and revenue growth will generally trigger upgrades to analysts’ forecasts and share price gains, which suggests the Brightree business is starting to more than justify its substantial price tag.
ResMed is also looking to move aggressively into the giant Chinese market via an October 2015 deal to acquire China-based Curative Medical. The group now reportedly the market leader in sleep disordered breathing and respiratory care in China.
Is it a buy?
Overall, this looked another solid quarter of growth for a business that has large global markets which help it deliver bulletproof like revenue growth thanks to its market-leading position as a retailer of medical devices. Moreover, the company’s strategy to leverage the digital future via cloud-connected, tech driven, home healthcare also looks to be paying off with a long growth runway ahead.
Management also flagged on an earnings call that the share buyback program could be reinstated in financial year 2018 which is a testament to the company’s strong free cash flows and relative balance sheet strength even post the Brightree deal.
A US 33 cent per share quarterly dividend was declared which will equate to an FX-adjusted US3.3 cents per chess depositary instrument (CDI) held by Australian investors who own the CDIs traded on the ASX. Australian investors in ResMed are direct beneficiaries of a stronger US dollar as each CDI represents a one tenth interest in the company’s primary issue traded on the New York Stock Exchange.
In my opinion ResMed continues to tick the boxes for investors as it enjoys strong management, a market-leading position and the opportunity to leverage the Brightree acquisition across its business in the quest to lift margins and earnings over long-term time horizons.