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Avanos (AVNS) Q3 Earnings Surpass Estimates, Margins Up

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Avanos Medical, Inc. (AVNS - Free Report) reported third-quarter 2022 adjusted earnings per share (EPS) of 38 cents, up 58.3% year over year. The bottom line surpassed the Zacks Consensus Estimate by 5.6%.

Our projection of adjusted EPS was 37 cents.

GAAP EPS 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 revenues compare 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.

Avanos Medical, Inc. Price, Consensus and EPS Surprise

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 rose 22.1% to $110.1 million. Gross margin expanded a huge 548 basis points (bps) to 54.5%.

We had projected a gross margin of 52.7% 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 EPS between $1.45 and $1.65. The Zacks Consensus Estimate for the same currently stands at $1.50.

Our Take

Avanos exited the third quarter of 2022 with better-than-expected earnings. The year-over-year improvement in the top and bottom lines was impressive. The strength exhibited by Avanos’ core Pain Management segment, along with low single-digit growth in Interventional Pain solutions, is encouraging. The continued strong demand for Digestive Health products and robust sales of NeoMed are promising. The expansion of both margins bodes well.

Yet, lower-than-expected revenues and the year-over-year decline in the Chronic Care segment are disappointing. Lower revenues from Acute pain products and post-Covid headwinds in Respiratory Health products resulting from distributors rebalancing their inventory, lower ICU census and product supply challenges are also worrying. Supply constraints, macroeconomic uncertainties and inflation impacting Avanos’ business are other concerns about 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 AMN Healthcare Services, Inc. (AMN - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) .

AMN Healthcare, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $2.57, which beat the Zacks Consensus Estimate by 10.3%. Revenues of $1.14 billion outpaced the consensus mark by 3.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare has an estimated long-term growth rate of 3.2%. AMN’s earnings surpassed estimates in all the trailing four quarters, the average being 10.9%.

Medpace Holdings, sporting a Zacks Rank #1, reported third-quarter 2022 EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $383.7 million outpaced the consensus mark by 8.1%.

Medpace Holdings has an estimated growth rate of 44.9% for the full-year 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22%.

Merit Medical, carrying a Zacks Rank #2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.

Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.

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