ResMed’s Q1 Results Highlight Resilience, but Challenges Loom Ahead
63min read ResMed (NYSE:RMD) delivered a solid first quarter of fiscal 2025, reporting $1.2 billion in revenue—a 11% year-over-year increase that aligned closely with market expectations. The sleep-disorder therapy specialist’s earnings per share (EPS) surged 42% to $2.11, bolstered by margin expansions and strong demand for its devices and software. However, the company’s decision to avoid updating full-year financial guidance, coupled with lingering supply chain and competitive risks, left investors cautiously optimistic.
Revenue Growth: A Regional Success Story
ResMed’s top-line performance was driven by broad-based demand across its core markets:
- Americas: Revenue rose 11% as sales of sleep devices and masks surged, fueled by the launch of the new AirTouch N30i fabric mask.
- Europe/Asia: Growth of 10% (on a constant-currency basis) reflected resilience despite macroeconomic headwinds.
- Residential Care Software (RCS): Revenue climbed 12%, showcasing the value of its digital health solutions to healthcare providers.
The company’s focus on innovation—such as AI-powered sleep analytics and wearable device integration—appears to be resonating with consumers and healthcare systems.
Margin Expansion: A Testament to Operational Strength
The real story in Q1 was ResMed’s ability to boost profitability. Gross margins expanded by 420 basis points to 58.6%, while operating margins jumped to 33%, driven by:
- Cost discipline: Lower component prices and manufacturing efficiencies.
- Price hikes: Strategic increases in selling prices to offset inflation and supply chain costs.
- Software monetization: Higher-margin RCS revenue now accounts for 18% of total sales.
This margin outperformance allowed non-GAAP EPS to hit $2.20, outpacing the $2.36 consensus estimate.
New Products and Strategic Vision
ResMed’s launch of the AirTouch N30i mask—its first fabric-based design—was a highlight. The product’s emphasis on comfort and adherence could further cement its dominance in the CPAP mask market, which generates over half its revenue.
Meanwhile, the company’s 2030 strategy, unveiled during its Investor Day, aims to help 500 million people achieve better sleep and respiratory health by 2030. This vision includes expanding its digital health offerings and targeting underserved markets, such as emerging economies and chronic disease management.
Challenges on the Horizon
Despite Q1’s success, ResMed faces hurdles that could test its growth trajectory:
1. Supply Chain Pressures: Rising freight costs, exacerbated by geopolitical tensions and port congestion, could squeeze margins in the coming quarters.
2. Competitive Risks: Competitors like Philips, which exited the U.S. sleep therapy market in 2022, may re-enter, intensifying pricing pressures.
3. Inventory Management: Balancing supply chain disruptions with cost control will require precise execution.
Analyst Outlook: Moderate Growth Ahead
Analysts project ResMed’s fiscal 2025 revenue to grow 7.5% to approximately $4.9 billion, with non-GAAP EPS reaching $9.08—a 12% increase. While these targets are achievable, they hinge on:
- Sustaining double-digit growth in masks and software.
- Containing freight costs, which rose 15% in Q1.
- Avoiding a price war if competitors return aggressively.
Conclusion: A Buy, but With an Eye on Risks
ResMed’s Q1 results underscore its strength as a leader in sleep and respiratory health. With a 43% free cash flow margin, a 3.2% dividend yield, and a fortress balance sheet ($426 million in cash), the company is well-positioned to navigate near-term challenges. However, investors should monitor:
- Margin trends: Gross margin compression could occur if freight costs escalate further.
- Market share: Philips’ potential re-entry could test ResMed’s pricing power.
- Software adoption: The RCS segment’s 12% growth in Q1 is promising, but scalability is key.
At current valuations—trading at 23x 2025 EPS—ResMed remains a compelling long-term play on the sleep-disorder therapy market, which is projected to grow at 8% annually through 2030. While short-term volatility is possible, the stock’s fundamentals justify a hold to buy rating for investors willing to endure near-term uncertainty.
