The ResMed Inc. (ASX: RMD) share price is on course to end the week on a positive note.

In morning trade, the sleep treatment company’s shares are up 1% to $34.19.

Why is the ResMed share price rising?

Investors have been bidding the ResMed share price higher today after the company released its third-quarter update.

For the three months ended 31 March, ResMed reported a 29% (31% in constant currency) increase in revenue over the prior corresponding period to US$1,116.9 million.

And while its gross margin contracted by 150 basis points to 55.3%, this couldn’t stop the company from delivering a 28% increase in income from operations.

This ultimately led ResMed generating operating cash flow of US$282.6 million and diluted earnings per share of US$1.58.

What were the drivers of its growth?

Management revealed that it significantly ramped up production and delivery of its cloud-connected flow generator devices to meet ongoing high demand from customers during the quarter. This resulted in strong device sales growth across its global markets. ResMed CEO, Mick Farrell, commented:

We now have full global availability of our connected AirSense 10 platform, while we continue to ramp production and availability across more geographies of our AirSense 11 platform. The bottom line is this: We can now support global customer demand for CPAP and APAP devices to serve the entire sleep device market. This is great news for physicians, providers, and especially for patients.

Farrell also revealed that its mask and patient interfaces businesses performed well, as did its outside-hospital software-as-a-service business. He added:

We also saw very strong growth in our mask and patient interfaces businesses globally, demonstrating a sustainable focus on patient adherence and resupply. Our outside-hospital software-as-a-service business achieved high-single-digit growth organically and reached well into double-digit growth with a full quarter of contribution from our MEDIFOX DAN acquisition that we closed last November.

How does this compare to expectations?

Goldman Sachs has taken a quick look at the result and notes that the company’s revenue growth was comfortable ahead of expectations. This may explain why the ResMed share price is rising as it is today. The broker said:

3Q23 revenue of $1,117m was up +31% cc, an acceleration from +20% in 2Q and +9% in 1Q23, and a solid beat to consensus +23%.

Pleasingly, it was the same for the company’s earnings, with ResMed beating on the bottom line. Goldman adds:

Earnings beat +3% as revenue growth compensates for material gross margin contraction.

Goldman currently has a buy rating and $38.00 price target on ResMed shares.

The post ResMed share price higher on Q3 ‘solid beat’ appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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