ResMed (NYSE: RMD) saw a dramatic surge in demand for its sleep and respiratory care products after a serious recall knocked competitor Philips out of the market for a year, according to CEO Mick Farrell.
But Farrell also explained during ResMed’s Q4 earnings call yesterday evening that the San Diego–based company is running into supply chain problems as it seeks to respond.
“Global supply chain limitations, including a shortage of electronic components, as well as ongoing freight constraints and costs, are impacting our ability to respond to the unprecedented increase in demand for ResMed products,” Farrell said during the call, transcribed by SeekingAlpha. He added that major producers have suggested that chip and electronic components shortages could last 12 or even 18 months.
Demand is so high that ResMed has had to allocate products in a way that tries to ensure that the patients most in need its ventilators and CPAPs first — the same type of strategy it had to employ during the peak of the COVID-19 crisis in the U.S. last year.
“ResMed will not be able to fill the entire supply gap that has been created by this situation caused by a competitor just 7 weeks ago. They were the number two player to our number one leading market position in almost all of the 140 countries that we compete in worldwide,” Farrell said.
“We’re doing everything that we can to partner further and further up our supply chain in order to increase our access to the supply of the past, the pieces and the components that we need to manufacture at scale.”
Farrell is predicting that ResMed will significantly accelerate the flow of its products, but it won’t happen until the first half of 2022.
Needham & Co. senior research analyst Mike Matson summed up the situation in the headline: “What happens when unstoppable demand meets immovable supply?” Matson kept his rating at Hold for RMD shares because he expects minimal revenue and EPS growth in the fiscal year ended June 2023 as Philips reenters the market and regains some of its market share.
ResMed reported profits of $195.1 million, or $1.33 per share, on sales of $876.1 million for the three months ended June 30, 2021, for a bottom-line gain of 9.7% and sales growth of 13.7% compared with Q4 2020.
Adjusted to exclude one-time items, earnings per share were $1.35, 7¢ ahead of The Street, where analysts were looking for EPS of $1.28 on sales of $783.18 million.
“Based upon our latest supply chain information and analysis, we see a path to $300 million to $350 million in additional revenue in fiscal 2022 over and above our previously planned revenue growth for fiscal 2022,” Farrell said.
Investors reacted by sending RMD shares more than 1% to $270.23 apiece in morning trading today. MassDevice and MDO‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was down slightly.
