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Avanos Medical (AVNS) Q3 Earnings Lag Estimates, Revenues Top

Avanos Medical, Inc. AVNS reported third-quarter 2021 adjusted earnings per share (EPS) 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.

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 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 EPS outlook, which is projected between $1.10-$1.20. The Zacks Consensus Estimate for the same currently stands at $1.13.

Our Take

Avanos exited the third quarter on a mixed note, wherein earnings missed the consensus mark but revenues beat the same. Year-over-year decline in the overall top line, along with continued softness in the chronic care segment, is worrying. Contraction in gross margin remains a woe. Being a pure-play MedTech company, it faces stiff competition from other industry players.

However, strength exhibited by Avanos’ core Pain Management segment is encouraging. Strong performances across the company’s RF ablation products, Game Ready and ambit pumps, along with robust demand for Digestive Health and improvements in Interventional Pain portfolio, raise our optimism. Robust sales of NeoMed are also impressive. Expansion of adjusted operating margin bodes well for the stock.

Zacks Rank and Stocks to Consider

Avanos currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have announced quarterly results are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Chemed Corporation CHE.

West Pharmaceutical, carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted EPS of $2.06, which beat the Zacks Consensus Estimate by 13.2%. Third-quarter revenues of $706.5 million outpaced the consensus mark by 3.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher reported third-quarter 2021 adjusted EPS of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Third-quarter revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%. It currently flaunts a Zacks Rank #1.

Chemed reported third-quarter 2021 adjusted EPS of $5.06, which surpassed the Zacks Consensus Estimate by 13.5%. Third-quarter revenues of $538.7 million outpaced the Zacks Consensus Estimate by 1.3%. It currently has a Zacks Rank #2.


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