Avanos Medical, Inc. AVNS reported third-quarter 2024 adjusted earnings per share (EPS) from continuing operations of 36 cents, up 20% year over year. The bottom line met the Zacks Consensus Estimate.

GAAP EPS from continuing operations in the quarter under review was 12 cents against the year-ago reported loss of 19 cents per share.

Revenues

Revenues totaled $170.4 million, down 0.5% year over year. The metric missed the Zacks Consensus Estimate by 2.7%.

Organic sales were up 1.1% year over year.

Per management, the top line was hurt by lower demand for AVNS’ surgical pain and hyaluronic acid (HA) products and lower pricing on HA products. This was partially offset by continued strong demand and volume in Avanos's Digestive Health portfolio, primarily from the NeoMed neonatal and pediatric feeding solutions.  Strong demand for Game Ready and Trident further supported growth.

The company’s shares have lost 17.1% iso far this year against the industry’s growth of 5.4%. The broader S&P 500 Index has gained 22.5% in the same time frame.

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Segmental Analysis

Avanos provides a portfolio of innovative product offerings that focus on Pain Management and Recovery and Digestive Health.

Pain Management and Recovery’s net revenues of $72.2 million decreased 5.4% year over year on a reported basis. Our third-quarter projection for the metric was $74.2 million.

Digestive Health’s net revenues of $98.2 million improved 3.4% year over year. Organically, revenues were up almost 3%. Our third-quarter projection for the metric was $100.4 million.

The normalized organic sales for the segment were up 1%, excluding HA and inorganic sales related to Avanos’ Diros acquisition. Per management, the segment performance was hurt by the unfavorable impact of the ON-Q product line due to the effect of transient execution and supply issues stemming from backorder challenges at one of AVNS’ pre-fillers early in the third quarter. However, this was partially offset by the strong performance of its ENFit products, capitalizing on the procedural shift to the ASC. Interventional Pain (IVP) business also posted double-digit growth on the back of higher procedural volumes, especially within the company’s Semtech and Trident product lines. Game Ready portfolio continued its double-digit growth for the third consecutive quarter.

Margin Analysis

In the quarter under review, Avanos’ gross profit fell 2.7% to $92.9 million. The gross margin contracted 130 basis points (bps) to 54.5%. Our projection for the metric was 66.9%.

Selling and general expenses declined 5.6% to $74.3 million. Research and development expenses increased 18% year over year to $7.2 million. Operating expenses of $80.9 million decreased 14.2% year over year.

Adjusted operating profit totaled $23.1 million, down 24.3% year over year. The decline was primarily due to loss of sales from divested business.

Financial Update

The company exited the third quarter with cash and cash equivalents worth $89 million compared with $92.2 million at the end of the second quarter. Total debt was $162 million compared with $175.1 million at the end of the second quarter.

Cumulative net cash provided by operating activities totaled $42.8 million compared with $19.7 million a year ago.

Guidance

Avanos has provided an updated outlook for 2024.

The company expects net sales from continuing operations for the full year to be in the range of $683-$688 million. The Zacks Consensus Estimate is currently pegged at $695.1 million.

Avanos anticipates 2024 adjusted EPS from continuing operations to lie between $1.30 and $1.45. The Zacks Consensus Estimate is currently pinned at $1.39.

AVANOS MEDICAL, INC. Price, Consensus and EPS Surprise

AVANOS MEDICAL, INC. price-consensus-eps-surprise-chart | AVANOS MEDICAL, INC. Quote

Our Take

Avanos ended the third quarter of 2024 with lower-than-expected sales. Weakness in overall revenues was led by lower demand and pricing for HA products. However, continued strength in the Digestive Health segment in the quarter was encouraging. The robust growth in NeoMed and continued demand for Game Ready were promising. Strength in the legacy Enteral Feeding business during the quarter was another positive.

On the earnings call, management confirmed that the strong demand for ENFit conversions in North America continues to aid the company. Management also commented that its IVP business continued its growth trend in the third quarter, with Avanos’ combined Radio Frequency Ablation portfolio increasing mid-single-digits year over year. Management was also encouraged by the continued momentum in the IVP generator sales, accompanied by higher procedural volumes. These raise our optimism about the stock.

The contraction of the gross margin does not bode well.

Zacks Rank and Stocks to Consider

AVNS carries a Zacks Rank #3 (Hold) at present.

Some better-ranked stocks from the same medical industry are AngioDynamics ANGO, Fresenius Medical FMS and Globus Medical GMED.

AngioDynamics, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 38.2% for 2025. You can seethe complete list of today’s Zacks #1 Rank stocks here.

ANGO’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 31.71%.

AngioDynamics’ shares have lost 19.2% year to date against the industry’s 6.1% growth.

Fresenius Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 13.6%. FMS’ earnings surpassed estimates in two of the trailing four quarters, met once and missed in the other, delivering an average surprise of 13.2%.

Fresenius Medical’s shares have risen 5.3% year to date compared with the industry’s 5.1% growth.

Globus Medical, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 12.7%. GMED’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.1%. Its shares have risen 38.7% year to date compared with the industry’s 6.1% growth.

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