Why Is Avanos Medical (AVNS) Down 30.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Avanos Medical (AVNS). Shares have lost about 30.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Avanos Q4 Earnings Beat Estimates, Gross Margin Contracts

Avanos reported adjusted earnings per share of 34 cents in fourth-quarter 2019, which surpassed the Zacks Consensus Estimate of 32 cents. The bottom line rose by a penny year over year.

The company’s revenues were $189.8 million which beat the Zacks Consensus Estimate by 6.7%. Also, the figure improved 11.7% on a year-over-year basis.

Q4 Segmental Analysis

Chronic Care

Net revenues at this segment of $113.4 million rose 15.5% year over year.

Pain Management

The segment reported net revenues of $76.4 million. The metric improved 6.6% on a year-over-year basis.

Margin Analysis

Gross profit came in at $109.7 million, up 9.3% from the prior-year quarter figure. Adjusted gross margin was 60% of net revenues, down 40 bps year over year.

Research and development expenses totaled $8.4 million, down 20.8% year over year. Selling, general and administrative expenses amounted to $103.6 million, up 17.9%.

Adjusted operating profit in the fourth quarter was $26 million, up 30% driven by higher sales volumes. The company reported operating loss of $3.2 million in the quarter under review compared with the year-ago quarter’s operating loss of $8.3 million.

Financial Update

As of Dec 31, 2019, cash and cash equivalents totaled $205.3 million.

Net cash from operating activities for the three months ended Dec 31, 2019, amounted to ($2.9 million), narrower than ($7.4 million) in the prior-year quarter.

Guidance

Avanos expects 2020 revenue growth between 5% and 7% compared to 2019.

Adjusted earnings per share are expected between a penny and $1.20.

The company expects lower foreign currency impact in 2020 in comparison to 2019.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -18.29% due to these changes.

VGM Scores

At this time, Avanos Medical has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Avanos Medical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.