AVNS Stock Gains Post Q1 Earnings & Revenue Beat, Gross Margin Down

Core Insights - Avanos Medical, Inc. reported first-quarter 2025 adjusted earnings per share (EPS) of 26 cents, an 18.2% increase year over year, surpassing the Zacks Consensus Estimate by 36.8% [1] - Revenues for the quarter reached $167.5 million, a 0.8% year-over-year increase, beating the Zacks Consensus Estimate by 2% [2] - The company has revised its 2025 outlook, estimating net sales between $665 million and $685 million and adjusted EPS between 75 and 95 cents, down from previous estimates [11] Revenue Performance - The Specialty Nutrition Systems (SNS) segment generated revenues of $101.1 million, up 6.9% year over year, driven by strong demand in enteral feeding and neonate solutions [5] - The Pain Management and Recovery (PM&R) segment reported revenues of $56.2 million, down 0.2% year over year, affected by unfavorable currency effects and strategic decisions to forgo certain revenue streams [3][4] - Organic sales increased by 2.8% year over year, indicating overall growth despite segment weaknesses [2] Margin and Expense Analysis - Gross profit declined by 5.3% year over year to $89.8 million, with a gross margin contraction of 346 basis points to 53.6% [7] - Selling and general expenses decreased by 9.4% year over year to $75.7 million, while research and development expenses fell by 22.9% to $5.4 million [7] - Adjusted operating profit increased by 107.1% year over year to $8.7 million, with an adjusted operating margin expansion of 267 basis points to 5.2% [8] Financial Position - At the end of the first quarter 2025, cash and cash equivalents totaled $97 million, down from $107.7 million at the end of 2024 [10] - Total debt decreased to $107.4 million from $134.7 million at the end of 2024 [10] - Net cash provided by operating activities was $25.7 million, compared to net cash used of $8 million in the prior-year period [10] Market Reaction and Guidance - Shares of Avanos gained nearly 5.4% following the earnings report [2] - The company expressed caution regarding potential impacts from tariffs on profitability and cash flow, alongside expectations of a softer second quarter for the SNS segment [13]