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Avanos Medical (AVNS) Down 17.6% Since Last Earnings Report: Can It Rebound?

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  • AVNS

A month has gone by since the last earnings report for Avanos Medical (AVNS). Shares have lost about 17.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Avanos Medical due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Avanos Medical Q3 Earnings Lag Estimates, Revenues Top

Avanos Medical, Inc. reported third-quarter 2021 adjusted earnings per share of 25 cents, up 19% year over year. The bottom line, however, lagged the Zacks Consensus Estimate by 7.4%.

GAAP loss per share in the quarter under review was 73 cents against the year-ago quarter’s EPS of 40 cents.

Revenues

Revenues grossed $184.1 million in the reported quarter, down 0.9% year over year. The metric surpassed the Zacks Consensus Estimate by 0.1%.

The top line declined due to slightly unfavorable pricing. The pain management business’ sales volume was flat while chronic care’s Respiratory Health business recorded lower sales volume in the reported quarter due to the pandemic-related headwinds. However, this was partially offset by continued strong demand for Digestive Health products and improvements in the Interventional Pain portfolio due to favorable comparisons to last year's sales.

Q3 Segmental Analysis

Avanos provides a portfolio of innovative product offerings that focuses on pain management and chronic care.

Pain Management’s net revenues of $67 million surged 0.9% on a year-over-year basis on the back of strong performance across the company’s radiofrequency (“RF”) ablation products, Game Ready cold and compression therapy systems, and ambit surgical pain pumps. However, this was offset by lower Acute Pain product revenues due to the Delta-related pause in elective surgical procedures impacting Avanos’ ON-Q franchise.

Chronic Care’s net revenues of $117.1 million declined 1.8% year over year due to lower Respiratory Health sales. However, NeoMed neonatal and pediatric feeding solutions continued to grow in double digits from the continuation of conversions to Avanos’ ENFit technology.

Margin Analysis

In the quarter under review, Avanos’ gross profit fell 5.6% to $90 million. Gross margin contracted 248 basis points (bps) to 49.1%.

Selling and general expenses fell 8.9% to $75 million. Research and development expenses rose 2.4% year over year to $8.4 million. Adjusted operating expenses of $83 million decreased 7.9% year over year.

Adjusted operating profit totaled $7 million, reflecting a 34.6% uptick from the prior-year quarter. Adjusted operating margin in the third quarter expanded 100 bps to 3.8%.

Financial Update

The company exited the third quarter of 2021 with cash and cash equivalents worth $97.8 million compared with $99.9 million in the second quarter of 2021. Long-term debt at the end of the third quarter was $145 million compared with $165 million at the end of the second quarter.

Cumulative net cash provided by operating activities at the end of the third quarter totaled $35.2 million compared with net cash used in operating activities of $3.6 million in the prior-year quarter.

Guidance

Despite the pandemic-led uncertainty, Avanos reiterated its 2021 outlook for net sales to grow in the range of 2-4% on a constant-currency basis from the previous year.

The company has maintained its full-year 2021 adjusted earnings per share outlook, which is projected between $1.10-$1.20. The Zacks Consensus Estimate for the same currently stands at $1.13.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Avanos Medical has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Avanos Medical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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