It has been about a month since the last earnings report for Avanos Medical (AVNS Quick QuoteAVNS - Free Report) . Shares have added about 21% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Avanos Medical due for a pullback? 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 Q3 Earnings Surpass Estimates, Margins Up

Avanos reported third-quarter 2022 adjusted earnings per share of 38 cents, up 58.3% year over year. The bottom line surpassed the Zacks Consensus Estimate by 5.6%.

Our projection of adjusted earnings per share was 37 cents.

GAAP earnings per share in the quarter under review was 33 cents against the year-earlier loss of 73 cents per share.

Revenues

Revenues grossed $202.1 million in the reported quarter, up 9.8% year over year. The metric, however, missed the Zacks Consensus Estimate by 1.8%.

The third-quarter revenue compares to our estimate of $206.9 million.

The top line was primarily driven by incremental revenues from the acquisition of OrthogenRx, Inc., higher volume in digestive health and favorable pricing. However, this was offset by unfavorable foreign currency translation effects of 3%.

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 $86.4 million increased 28.9% on a year-over-year basis. Excluding the OrthogenRx buyout, the business recorded revenues of $66 million.

This figure compares to our Pain Management segment’s Q3 projection of $80.5 million.

Chronic Care’s net revenues of $115.7 million declined 1.2% year over year, despite strength in Digestive Health. Excluding Maxter, the business recorded revenues of $116 million. NeoMed neonatal and pediatric feeding solutions grew 39% from continued conversion to ENFit.

This figure compares to our Chronic Care segment’s Q3 projection of $126.4 million.

Margin Analysis

In the quarter under review, Avanos’ gross profit rose 22.1% to $110.1 million. Gross margin expanded a huge 548 basis points (bps) to 54.5%.

We had projected a 52.7% of gross margin for Q3.

Selling and general expenses rose 9.5% to $82.1 million. Research and development expenses declined 13.1% year over year to $7.3 million. Adjusted operating expenses of $89.4 million increased 7.2% year over year.

Adjusted operating profit totaled $20.7 million, reflecting a huge 204.4% uptick from the prior-year quarter. The adjusted operating margin in the third quarter expanded 655 bps to 10.2%.

The adjusted operating margin, according to our model, was 8.7% for Q3.

Financial Update

The company exited third-quarter 2022 with cash and cash equivalents worth $117 million compared with $106.5 million at the end of the second quarter. Total debt at the end of third-quarter 2022 was $254 million, which is flat compared with the end of the second quarter.

Cumulative net cash provided by operating activities at the end of third-quarter 2022 totaled $57.2 million compared with net cash provided by operating activities of $35.2 million in the prior-year quarter.

Guidance

Avanos has reiterated its full-year 2022 outlook.

The company continues to expect full-year net sales in the range of $815 million and $835 million (reflecting organic growth of 1-4%). The Zacks Consensus Estimate for the same currently stands at $825.3 million.

The company continues to anticipate full-year 2022 adjusted earnings per share between $1.45 and $1.65. The Zacks Consensus Estimate for the same currently stands at $1.50.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Avanos Medical has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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. Notably, Avanos Medical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Avanos Medical belongs to the Zacks Medical - Instruments industry. Another stock from the same industry, Idexx Laboratories (IDXX Quick QuoteIDXX - Free Report) , has gained 19% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Idexx reported revenues of $841.66 million in the last reported quarter, representing a year-over-year change of +3.9%. EPS of $2.15 for the same period compares with $2.03 a year ago.

Idexx is expected to post earnings of $1.92 per share for the current quarter, representing a year-over-year change of +1.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -1.5%.

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