Avanos (AVNS) Q3 Earnings Top Estimates, Margins Contract
Avanos Medical, Inc. AVNS reported third-quarter 2023 adjusted earnings per share (EPS) from continuing operations of 30 cents, up 25% year over year. The bottom line topped the Zacks Consensus Estimate by a penny.
GAAP loss per share from continuing operations in the quarter under review was 19 cents against the year-ago period’s EPS of 23 cents.
Revenues
Revenues grossed $171.3 million in the reported quarter, down 0.6% year over year. The metric beat the Zacks Consensus Estimate by 3.8%.
Per management, the top line was hampered by lower hyaluronic acid portfolio (HA) sales. Lower revenues from the Pain Management and Recovery portfolio also weighed on the top line. However, this was offset by a higher volume in the Digestive Health portfolio and slightly favorable pricing and foreign currency translation effects.
Excluding currency and the impact of products no longer sold, organic growth was flat.
Segmental Analysis
Avanos provides a portfolio of innovative product offerings that focus on Pain Management and Recovery and Digestive Health.
Pain Management and Recovery’s net revenues of $76.3 million decreased 11.7% year over year on a reported basis. At constant exchange rate (CER), revenues were down 10%. Although the segment benefited from Diros revenues, the negative impact of foreign exchange and Avanos’ previously-announced decision to discontinue certain low-growth, low-margin products dragged the revenues. Management also confirmed witnessing continued softness across the Game Ready and HA product categories during the reported quarter. This figure compares to our third-quarter projection of $69.7 million.
Digestive Health’s net revenues of $95 million improved 10.6% year over year. At CER, revenues were up nearly 10.5%. The business saw continued strong execution for NeoMed. Avanos also recorded continued expansion of its U.S. CORTRAK standard of care offering. This figure compares to our third-quarter projection of $86 million.
Avanos Medical, Inc. Price, Consensus and EPS Surprise
Avanos Medical, Inc. price-consensus-eps-surprise-chart | Avanos Medical, Inc. Quote
Margin Analysis
In the quarter under review, Avanos’ gross profit fell 4.7% to $95.5 million. The gross margin contracted 240 basis points (bps) to 55.8%.
Selling and general expenses rose 0.5% to $78.7 million. Research and development expenses decreased 14.1% year over year to $6.1 million. Adjusted operating expenses of $84.8 million decreased 0.7% year over year.
Adjusted operating profit totaled $10.7 million, reflecting a 27.7% decline from the prior-year quarter’s level. Adjusted operating margin in the third quarter contracted 234 bps to 6.2%.
Financial Update
The company exited third-quarter 2023 with cash and cash equivalents worth $107.1 million compared with $81.8 million at the end of second quarter. Total debt at the third-quarter end was $264.5 million compared with $209.5 million at the second-quarter end.
Cumulative net cash provided by operating activities at the end of third-quarter 2023 totaled $19.7 million compared with $57.2 million in the prior-year period.
Guidance
Avanos has reiterated its 2023 continuing operations guidance.
The company continues to estimate its revenues for the full year in the range of $675 million-$685 million.
Avanos continues to anticipate 2023 adjusted EPS between $1.05 and $1.15. The Zacks Consensus Estimate currently stands at $1.14.
Our Take
Avanos’ ended the third quarter of 2023 with better-than-expected results. Its continued strength in the Digestive Health segment in the quarter was encouraging. The robust growth in NeoMed and CORTRAK was promising. On the earnings call, management confirmed that the early performance of Avanos’ newly acquired Trident product line has been solid. Management is also upbeat about the U.S. market launch, which commenced recently. This raises our optimism about the stock.
Management also confirmed during the earnings call that it anticipates a continued reduction in supply-chain disruptions and strong demand for Avanos’ products. This also looks promising for the stock.
Yet, Avanos’ year-over-year decline in the top line and lower revenues from the Pain Management and Recovery segment were disappointing. Management also confirmed during the earnings call that its efforts to reduce inventory negatively impacted fixed cost absorption. The company’s third-quarter performance was also hampered by the ongoing inflationary pressure on electronic components. These raise our apprehension. The contraction of both margins does not bode well.
Zacks Rank and Key Picks
Avanos currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, DexCom, Inc. DXCM and Integer Holdings Corporation ITGR.
Abbott, carrying a Zacks Rank of 2 (Buy), reported third-quarter 2023 adjusted EPS of $1.14, beating the Zacks Consensus Estimate by 3.6%. Revenues of $10.14 billion outpaced the consensus mark by 3.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 6.8%.
DexCom reported third-quarter 2023 adjusted EPS of 50 cents, beating the Zacks Consensus Estimate by 47.1%. Revenues of $975 million surpassed the Zacks Consensus Estimate by 4%. It currently carries a Zacks Rank #2.
DexCom has a long-term estimated growth rate of 33.6%. DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%.
Integer Holdings reported third-quarter 2023 adjusted EPS of $1.27, beating the Zacks Consensus Estimate by 20.9%. Revenues of $404.7 million surpassed the Zacks Consensus Estimate by 8.7%. It currently carries a Zacks Rank #2.
Integer Holdings has a long-term estimated growth rate of 15.8%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 11.9%.
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