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Avanos Medical (AVNS) Down 14% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Avanos Medical (AVNS - Free Report) . Shares have lost about 14% 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 drivers.

Avanos Q2 Earnings Top Estimates, FY22 View Lowered

Avanos reported second-quarter 2022 adjusted earnings per share of 41 cents, up 95.2% year over year. The bottom line surpassed the Zacks Consensus Estimate by 5.1%.

Our projection of adjusted earnings per share of 41 cents matched the company-reported figure.

GAAP earnings per share in the quarter under review was 24 cents, down 69.2% year over year.

Revenues

Revenues grossed $203 million in the reported quarter, up 8.9% year over year. The metric, however, missed the Zacks Consensus Estimate by 2.5%.

The second-quarter revenue compares to our estimate of $207.6 million.

The top line was primarily driven by incremental revenues resulting from the acquisition of OrthogenRx, Inc. Strong demand and volume for Digestive health and Interventional pain products were also recorded.

Q2 Segmental Analysis

Avanos provides a portfolio of innovative product offerings that focuses on Pain Management and Chronic Care.

Pain Management’s net revenues of $90.7 million surged 28.8% on a year-over-year basis. Excluding the OrthogenRx buyout, the business recorded revenues of $69 million.

This figure compares to our Pain Management segment’s Q2 projection of $77.2 million.

Chronic Care’s net revenues of $112.3 million declined 3.2% year over year despite strength in Digestive Health. NeoMed neonatal and pediatric feeding solutions grew 27% from continued conversion to ENFit.

This figure compares to our Chronic Care segment’s Q2 projection of $130.4 million.

Margin Analysis

In the quarter under review, Avanos’ gross profit rose 34.1% to $114.9 million. Gross margin expanded a huge 1062 basis points (bps) to 56.6%.

We projected 51.4% of gross margin for Q2.

Selling and general expenses rose 13.6% to $87.1 million. Research and development expenses remained flat year over year at $8 million. Adjusted operating expenses of $95.1 million increased 12.3% year over year.

Adjusted operating profit totaled $19.8 million, reflecting a huge improvement from the prior-year quarter’s adjusted operating profit of $1 million. Adjusted operating margin in the second quarter expanded 922 bps to 9.8%.

Adjusted operating margin, according to our model was 13.7% for Q2.

Financial Update

The company exited second-quarter 2022 with cash and cash equivalents worth $106.5 million compared with $104.3 million at the end of first quarter. Total debt at the end of second-quarter 2022 was $254 million compared with $254.4 million at the end of first quarter.

Cumulative net cash provided by operating activities at the end of second-quarter 2022 totaled $28.8 million compared with net cash used in operating activities of $12 million in the prior-year quarter.

Guidance

Avanos has lowered its full-year 2022 outlook.

The company now expects full-year net sales in the range of $815 million and $835 million (reflecting organic growth of 1-4%), lower than the previous outlook of net sales of $830-$850 million (suggesting organic growth of 3-6%). The Zacks Consensus Estimate for the same currently stands at $840.7 million.

The company now anticipates full-year 2022 adjusted earnings per share between $1.45 and $1.65, lower than the earlier projection of $1.55 and $1.75. The Zacks Consensus Estimate for the same currently stands at $1.66.

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 -20.88% due to these changes.

VGM Scores

At this time, Avanos Medical has a great 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 A. 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 these revisions 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.

Performance of an Industry Player

Avanos Medical is part of the Zacks Medical - Instruments industry. Over the past month, Inogen (INGN - Free Report) , a stock from the same industry, has gained 0.2%. The company reported its results for the quarter ended June 2022 more than a month ago.

Inogen reported revenues of $103.38 million in the last reported quarter, representing a year-over-year change of +1.8%. EPS of -$0.02 for the same period compares with $0.22 a year ago.

For the current quarter, Inogen is expected to post a loss of $0.47 per share, indicating a change of -188.7% from the year-ago quarter. The Zacks Consensus Estimate has changed -13.7% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Inogen. Also, the stock has a VGM Score of C.


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