ResMed stock slides to near 2-year low despite 18% annual revenue rise

ResMed may have clocked its highest-ever annual revenues in its 2023 fiscal year, but those gains seemingly weren’t enough to satisfy investors.

In the days since the devicemaker reported its $4.2 billion in revenues—marking the first time its yearly haul has surpassed the $4 billion mark and an 18% jump over fiscal 2022’s take—its stock price has plummeted to lows not seen since 2021 before competitor Philips began its wide-ranging recall of CPAP and BiPAP machines and other respiratory devices.

After spending the entirety of the last year above the $200 mark, ResMed’s stock took a sharp dip down to that threshold on Thursday evening, after the results were announced. It has continued to slide downwards in the days since, reaching a low of around $179 on Friday afternoon, about a 19% drop from its $220 closing price before the earnings report was released.

The sell-off came as ResMed’s earnings fell short of analysts’ predictions, thanks to narrowed margins for the year. The company’s gross margin shrank 1% in 2023 compared to the year prior, down to 55.8% from 56.6%—indicating that profits haven’t grown in line with the supersized revenues.

In a call with investors Thursday, Brett Sandercock, the company’s chief financial officer, attributed the minimized margins to cost increases among components, warranties and manufacturing, “unfavorable foreign currency movements” and “product mix shifts due to the significant increase in sleep device sales, partially offset by increases in average selling prices.”

CEO Mick Farrell expressed confidence that ResMed will be able to overcome those setbacks in its fiscal year 2024, which began July 1. During the investor call, he predicted that the year will usher in growth in its software solutions and bi-level and noninvasive ventilator business lines, as well as new regulatory approvals and a scaling up of production, all of which will bolster the company’s margins.

“I also see that the higher inventory costs and freight costs that we’ve seen through the supply chain crisis continue to work their way through our sold products,” he added, referencing the stoppages that have tempered ResMed’s rollout of its latest AirSense 11 CPAP machine—which will be the central target of 2024’s production scale-up.

And that predicted growth won’t be slowed down by competitors in the space, according to Farrell. When asked during the call how Philips’ impending return to the CPAP market may impact ResMed, the chief executive said, “When Philips comes back, they’ll have to start at position number four, if you like, in new patient setups.”

ResMed has been beating Philips “handsomely” in parts of Europe that were either not impacted by the recall or have since resumed sales of Philips’ machines, Farrell continued, adding that Philips will face “very slow progress” in returning to full speed around the world.

“We look at it going forward and say, ‘Do we have enough supply to take care of all the market demands between us and the other regional players?’ And we’ve finally gotten to where I can say, this quarter, that we’re there, and we can take care of it,” he said. “So, it’s almost irrelevant to us how and when, in terms of what that looks like, because we’re able to take care of all the market growth.”

Farrell also brushed off concerns that the growing popularity of GLP-1 drugs could steal some market share by helping to treat people whose obstructive sleep apnea is associated with obesity. CPAP machines’ security in that realm come down to three factors, he said: their much-lower costs than the drugs, much-higher adherence rate and minimal side effects.

“I think it’s, frankly, good marketing around the area of obesity, and it can drive patients into the funnel,” Farrell said. “If they come in the funnel because they tried a pill and it didn’t work, that’s good for us, too.”