Episode Details

ResMed Inc. (RMD) Q4 FY2026 — Q4 FY2026 (quarter ended June 30, 2026): revenue $1,463.6M, +9% reported and +8% constant currency, just ahead of a $1,461.3M estimate. GAAP diluted EPS $2.64; NON-GAAP diluted EPS $2.95 vs a $2.89 non-GAAP bar - a 2% BEAT, not the 9% miss some outlets printed off the GAAP number. The 31-cent gap is $41.9M of Astral Class 1 recall expense. FY2026: revenue $5,653M +10%, non-GAAP EPS $11.17 +17%, free cash flow $1,650M (DOWN 1%), $1,050M returned (+72%), dividend +10% to $0.66. The 8-K was accepted 4:05pm ET, so the $223.24 close is the last pre-print price. Two earnings numbers came out of ResMed's fourth quarter, and most of the coverage picked the wrong one. GAAP diluted EPS was $2.64, up 2%. NON-GAAP diluted EPS was $2.95, up 16%. The tracked $2.89 consensus is a NON-GAAP bar, so the like-for-like comparison is a 2% BEAT - not the 9% miss you get by putting GAAP against a non-GAAP estimate. We proved the basis rather than assuming it: the four tracked quarterly figures for FY2026 ($2.55, $2.81, $2.86, $2.95) sum to exactly the $11.17 full-year non-GAAP figure in the release. The 31-cent gap between the two EPS numbers is almost entirely $41.9 million of Astral field safety notification expense - an FDA Class 1 recall, number Z-2735-2026, covering 168,069 ventilators over a supercapacitor that can leak and stop ventilation. Strip it out and non-GAAP gross margin ROSE 90bps to 62.3%. So the quarter is fine. The number that actually concerns us is further down: FY2026 free cash flow was $1,650M against $1,662M - DOWN 1% - in a year non-GAAP EPS rose 17%. We traced it (capex $90M to $156M, a tax rate normalising from 16.5% to 20.6%, and a ~$91M working-capital swing) and it is mostly benign. Our fair value is about $250 against the $223.24 pre-print close. Wall Street's consensus rating is HOLD at $242.22 - we are more bullish on the word AND the number. THE CALL: BUY (3/5, THE TAPE ALREADY PRICES THE GLP-1 BEAR CASE - BUT THE CASH DID NOT GROW) — base-case value ~$250.0 vs ~$223.24 today. KEY METRICS: - CALL: BUY 3/5, fair value ~$250 vs the $223.24 pre-print close (+12%). Street: 35 analysts, HOLD, $242.22 avg (+8.5%). We are MORE BULLISH on the word AND the number. - Revenue $1,463.6M +9%. Non-GAAP EPS $2.95 vs a $2.89 bar (+2%). GAAP EPS $2.64 - the 31c gap is $41.9M of Astral Class 1 recall cost. Non-GAAP gross margin 62.3%, +90bps. - FY26: revenue $5,653M +10%, non-GAAP EPS $11.17 +17%, FCF $1,650M DOWN 1%, $810M net cash, $1,050M returned +72%, dividend +10% to $0.66. Reverse DCF implies under 7% growth. What to watch: UP: masks and other holding double-digit growth for two more quarters; capital expenditure normalising back under $120M; free cash flow that actually grows; Residential Care Software reaching the high-single-digit growth management has guided to; or a completed accelerated share repurchase on the $490M of MatrixCare proceeds. BEAR: device growth slowing below 5%; mask growth converging down toward devices; another year of flat free cash flow; a firm Philips Respironics US re-entry date; or a second Astral charge. Next print is late October. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.