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Avanos Medical (AVNS) Down 8.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Avanos Medical (AVNS). Shares have lost about 8.9% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Avanos Q2 Earnings Beat Estimates, Revenues Miss

Avanos Medical reported adjusted earnings of 28 cents per share in second-quarter 2019, which beat the Zacks Consensus Estimate by 12%. However, the bottom line plunged 41.7% year over year.

Revenues of $172.2 million missed the Zacks Consensus Estimate by 0.3%. However, the figure improved 7% on a year-over-year basis.

Q2 Segmental Analysis

Chronic Care

Net revenues at this segment amounted to $102.3 million, up 5.4% year over year.

Pain Management

The segment reported net revenues of $69.9 million. The metric advanced 9.6% on a year-over-year basis.

Margin Analysis

Adjusted gross profit came in at $103.4 million, up 7.4% from the prior-year quarter figure. Adjusted gross margin was 60% of net revenues, up 10 bps year over year.

Research and development expenses totaled $9.5 million, down 12% year over year. Selling, general and administrative expenses amounted to $94.7 million, up 18.7% year over year.

Adjusted operating profit in the second quarter was $19.5 million, improving 25% on a year-over-year basis.

The company reported operating loss of $9.8 million in the quarter under review, against the year-ago quarter’s operating income of $8.8 million.

Financial Update

As of Jun 30, 2019, cash and cash equivalents totaled $288.1 million, down 25.1% from 2018-end level.

Net cash from operating activities for the three months ended Jun 30, 2019, amounted to ($31.9) million, narrower than ($96.7) million from the prior-year quarter.

Guidance Revised

For 2019, Avanos now projects adjusted earnings per share to range between $1.15 and $1.25 compared to the prior guided range of $1.15-$1.35.

Avanos anticipates 2019 net revenues to increase 8-10% year over year (up from the previously guided estimate of 6-8%), on a constant-currency basis (including Game Ready and now NeoMed).

Notably, the other key planning assumptions that management provided in the 2018 conference call remain unchanged.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -13.51% due to these changes.

VGM Scores

At this time, Avanos Medical has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Avanos Medical has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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