Avanos Medical, Inc. AVNS reported fourth-quarter 2023 adjusted earnings per share (EPS) from continuing operations of 36 cents, down 20% year over year. The bottom line missed the Zacks Consensus Estimate by a penny.
GAAP EPS from continuing operations in the quarter under review was 24 cents, up 14.3% year over year.
Full-year adjusted EPS was $1.03, up 3% compared with that at the end of the comparable 2022 period. The figure lagged the Zacks Consensus Estimate by 0.9%.
Revenues
Revenues grossed $173.3 million in the reported quarter, down 4.6% year over year. However, the metric beat the Zacks Consensus Estimate by 0.2%.
Per management, the top line was hampered by lower hyaluronic acid (HA) portfolio sales resulting from continued pricing pressure due to the Medicare reimbursement changes and lower-than-anticipated sales across the company's North America digestive health products (due to a major distributor’s ordering pattern change). However, this was partially offset by favorable foreign currency translation effects.
Full-year revenues were $673.3 million, reflecting a 1.6% decline from the comparable 2022 period. The figure, however, topped the Zacks Consensus Estimate by 0.1%.
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 $78.5 million decreased 11.5% year over year on a reported basis. Per management, the softness of the HA portfolio was the main contributor to the decline. However, the segment witnessed a solid start to its Trident sales and sequential improvement in the Interventional Pain and Game Ready product categories during the reported quarter. This figure compares to our fourth-quarter projection of $81 million.
Digestive Health’s net revenues of $94.8 million improved 2% year over year. At constant exchange rate, revenues were up 3%. The business saw sequential growth for NeoMed and growth from CORTRAK guided tube placement. This figure compares to our fourth-quarter projection of $96.4 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 fell 7.7% to $95 million. The gross margin contracted 184 basis points (bps) to 54.8%. We had projected 58.7% of gross margin for the fourth quarter.
Selling and general expenses declined 5.3% to $74.5 million. Research and development expenses decreased 5.6% year over year to $6.8 million. Adjusted operating expenses of $81.3 million decreased 5.4% year over year.
Adjusted operating profit totaled $13.7 million, reflecting a 19.4% decline from the prior-year quarter’s level. Adjusted operating margin in the fourth quarter contracted 146 bps to 7.9%.
Financial Update
The company exited 2023 with cash and cash equivalents worth $87.7 million compared with $127.7 million at the end of 2022. Total debt at 2023-end was $168 million compared with $232.5 million at 2022-end.
Cumulative net cash provided by operating activities at the end of 2023 totaled $32.4 million compared with $90.9 million in the prior-year period.
Guidance
Avanos has initiated its 2024 outlook.
The company estimates its net sales for the full year in the range of $685 million-$705 million, reflecting organic growth of 3-6% (excluding the impact of the product portfolio rationalization under the Transformation Process). The Zacks Consensus Estimate currently stands at $698.8 million.
Avanos anticipates 2024 adjusted EPS between $1.30 and $1.45. The Zacks Consensus Estimate currently stands at $1.38.
Our Take
Avanos’ ended the fourth quarter of 2023 with better-than-expected revenues. Its continued strength in the Digestive Health segment in the quarter was encouraging. The robust growth in NeoMed and CORTRAK was promising. On the earnings call, management confirmed that the performance of Avanos’ newly acquired Trident product line has been solid. Management is also upbeat about the U.S. market launch and scaling up manufacturing capacity in its Toronto facility. This raises our optimism about the stock.
Yet, Avanos’ lower-than-expected earnings and dismal top-line and bottom-line results were disappointing. The continued year-over-year decline in the Pain Management and Recovery segment was discouraging as well. The contraction of both margins does not bode well.
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 Cencora, Inc. COR, Elevance Health, Inc. ELV and Cardinal Health, Inc. CAH.
Cencora, carrying a Zacks Rank of 2 (Buy), reported first-quarter fiscal 2024 adjusted EPS of $3.28, beating the Zacks Consensus Estimate by 14.7%. Revenues of $72.25 billion outpaced the consensus mark by 5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cencora has a long-term estimated growth rate of 8.6%. COR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 6.7%.
Elevance Health reported fourth-quarter 2023 adjusted EPS of $5.62, beating the Zacks Consensus Estimate by 1.3%. Revenues of $42.45 billion outpaced the consensus mark by 1.5%. It currently carries a Zacks Rank #2.
Elevance Health has a long-term estimated growth rate of 12%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 3.1%.
Cardinal Health reported second-quarter fiscal 2024 adjusted EPS of $1.82, beating the Zacks Consensus Estimate by 16.7%. Revenues of $57.45 billion surpassed the Zacks Consensus Estimate by 1.1%. It currently carries a Zacks Rank #2.
Cardinal Health has a long-term estimated growth rate of 15.9%. CAH’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 15.6%.
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