ResMed plummets after earnings warning

Sleep disorder specialist ResMed's shares took a beating on the Australian Stock Exchange this morning (May 3), dropping more than 22 per cent when the company suggested that it would not be able to meet its fourth quarter earnings estimate.

But the company announced that its third quarter income had risen to $US10.4 million, up from a loss of $US10.2 million in the same period in fiscal 2001.

The company also said that revenue for the quarter increased by 24 per cent, to $US52.8 million, and R&D expenditure had increased by 7.2 per cent of net revenues to $US3 million in the quarter. ResMed said the R&D increase reflected its commitment to product development and clinical research.

Dr Peter Farrell, ResMed's CEO and chairman, said the revenue results could be attributed to the company's "robust" performance. US sales of the company's devices and accessories increased by 25 per cent, and the rest of the world by 22 per cent.

But healthcare policy changes in Germany led to flat sales there. "If current uncertainties in the German sleep-disordered breathing market continue, it will be a challenge for the company to meet the [research group] First Call consensus earnings per share estimate of 30 cents for the June quarter," Farrell said.

UBS Warburg healthcare analyst John Deakin-Bell said he did not think that the company's results were bad enough to warrant a 20 per cent drop in share value.

"Fundamentally the business is intact - the US is going very well, and that's the core of the business," Deakin-Bell said. "We think the stock represents pretty good value."

ResMed has recently released four new products - a mask and patient management software in the US, and a new device and mask in Europe.

Farrell said, "in addition, we are delighted about prospects to grow public and physician awareness of sleep-disordered breathing, as well as fund seminal cardio-vascular research in the field through the ResMed SDB Foundation."

"Given the prevalence and serious health consequences of untreated SDB, we feel much more needs to be done."