Avanos Medical Gains on Q3 Earnings Beat, Raises '25 Sales View

Core Insights - Avanos Medical, Inc. reported a third-quarter 2025 adjusted EPS of 22 cents, a decline of 38.9% year over year, but exceeded the Zacks Consensus Estimate of 16 cents by 37.5% [1] - Revenues for the quarter reached $177.8 million, reflecting a year-over-year increase of 4.3% and surpassing the Zacks Consensus Estimate by 6.9% [2] - The company raised its 2025 sales guidance to a range of $690-$700 million, up from a previous estimate of $665-$685 million, and increased the lower end of its EPS forecast to between 85 and 95 cents [14] Revenue Breakdown - The Specialty Nutrition Systems (SNS) segment generated revenues of $114 million, up 16.1% year over year, driven by strong demand in enteral feeding and neonatal solutions [8] - The Pain Management and Recovery (PM&R) segment reported revenues of $59 million, a 2.1% increase year over year, with net sales of Radio Frequency Ablation (RFA) products growing 10.5% to $34.6 million [4][5] - The Corporate and Other segment's revenues fell to $4.8 million, down 66.7% year over year, following the divestiture of the Hyaluronic Acid product line [9][10] Margin and Expense Analysis - Adjusted gross profit decreased by 4.7% year over year to $97.4 million, with the adjusted gross margin contracting by 390 basis points to 55.7% [11] - Selling and general expenses rose by 3.2% to $83.5 million, while research and development expenses decreased by 7.9% to $5.8 million [11] - Adjusted operating profit fell 44% to $12.2 million, with the adjusted operating margin contracting by 580 basis points to 6.9% [12] Financial Position - At the end of the third quarter, the company had cash and cash equivalents of $70.5 million, down from $90.3 million at the end of the second quarter, while total debt decreased to $102.8 million [13] - Cumulative net cash provided by operating activities increased to $46.5 million compared to $42.8 million in the prior-year period [13] Strategic Initiatives - The company is focusing on strategic portfolio actions, including divesting non-core assets and acquiring Nexus Medical to enhance its neonatal and pediatric offerings [18] - Cost-transformation initiatives are underway, aimed at achieving significant savings and improving operational efficiency through 2026 [18] - Despite challenges such as tariffs impacting margins, the company is implementing mitigation strategies, including supply-chain relocation and internal cost controls [19]