Why ResMed Is in the Green Today

By Brian Feroldi Markets Fool.com

Image source: Getty Images.

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What happened

After releasing an upbeat earnings report, shares ofResMed(NYSE: RMD),a developer of treatments for sleep-disorder breathing,rose as much as 11% in early morning trading on Tuesday.

So what

Here's a look at the key figures from ResMed's fiscal year 2017 second-quarter report that drove Tuesday's gain.

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Sales

$530.4 million

$454.5 million

16.7%

Non-GAAP Net Income

$103.3 million

$102.5 million

0.8%

Non-GAAP EPS

$0.73

$0.73

0%

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Data source: Resmed.

Bycomparison, Wall Street was only expecting revenue of $515 million and Non-GAAP EPS of $0.70. Thus, ResMed was able to beat analyst's estimates on both metrics.

Management also made a number of positive comments on its conference call with investors that suggest the good times are going to continue. The company said it is experiencing a lot of demand for its two newmasks -- the AirFit F20 and AirFit N20 -- which utilize the company's new sealing technology. Management said initial demand from patients and clinicians is so high that it has outstripped its initial supply.

Given the upbeat financial results and positive commentary on its new products, it is hard to blame the markets for bidding up shares Tuesday.

Now what

While revenue did rise by 17% during the quarter, it is worth pointing out that a large portion of the gain came from last year's acquisition Brightree. On an organic basis, revenue grew by9% in the Americas and by 13% on constant currency basis abroad, which are still solid numbers.

ResMed's bottom line also requires some additional context. WhileNon-GAAP net income was basically flat year over year, ResMed benefited from a tax gain of $5.1 million in the year-ago period. If you adjust for the gain, then non-GAAP earnings per share would have increased by 6%.

Looking ahead, management believes that the successful launch of its new products should help the company stay one step ahead of itsdirect competitors likePhilipsandFisher & Paykel. When combined with the increasingawareness of sleep-disorder breathing, ResMed looks primed for even growth from here. If true, then the company could be in a position to report positive earnings surprises in upcoming quarters.

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Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends ResMed. The Motley Fool has a disclosure policy.