It has been about a month since the last earnings report for Avanos Medical (AVNS Quick QuoteAVNS - Free Report) . Shares have lost about 2.2% 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 Q2 Earnings Lag Estimates, Revenues Top

Avanos Medical, Inc. reported adjusted earnings per share of 21 cents for second-quarter 2021, missing the Zacks Consensus Estimate of 23 cents by 8.7%. However, the bottom line improved 61.5% year over year.

GAAP earnings per share in the quarter under review was 78 cents, against the year-ago quarter’s loss of 6 cents.

Revenues

Revenues for the company were $186.4 million, which beat the Zacks Consensus Estimate by 2.4%. The top line increased 13.9% on a year-over-year basis.

The top-line performance was driven by strength shown by the pain management segment owing to the continued recovery of elective surgical procedures and favorable comparison to year-ago quarter’s sales, which were adversely affected by the COVID-19 pandemic. Apart from this, sustained robust demand for Digestive Health contributed to the upside. However, unfavorable price and mix of 1% offset the improvement.

Q2 Segmental Analysis

Chronic Care

Net revenues of $116 million declined 3.5% year over year.

Pain Management

Net revenues of $70.4 million surged 61.8% on a year-over-year basis.

Margin Analysis

Gross profit was $85.7 million, down 0.9% from the prior-year quarter. Gross margin was 45.9% of net revenues, down 690 bps year over year.

Research and development expenses amounted to $8 million in the quarter under review, up 3.9% from the year-ago quarter. Selling and general expenses totaled $76.7 million, down 0.3% from the prior-year quarter.

Operating loss in the second quarter was $7.3 million, wider than the year-ago quarter’s loss of $1.8 million.

Financial Update

The company exited the second quarter of 2021 with cash and cash equivalents worth $99.9 million compared with $100.1 million in the first quarter of 2021.

Cumulative net cash used in operating activities at the end of the second quarter totaled $12 million compared with net cash used in operating activities of $4.7 million in the prior-year quarter.

Guidance

The company continues to maintain its 2021 outlook for net sales to grow in the range of 2% to 4% on constant currency basis from the previous year. The Zacks Consensus Estimate for revenues is pegged at $742.3 million.

The company has revised its full-year 2021 earnings outlook. The adjusted earnings per share for 2021 is now projected between $1.10 and $1.20 (narrowed from the prior range of $1.10-$1.25). The Zacks Consensus Estimate for the same stands at $1.21.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Avanos Medical has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, 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.