Avanos Medical Sustains Positive Outlook with 2.6% Sales Increase

Avanos Medical, Inc., a global medical device company, reported a 2.6% increase in sales from continuing operations, reaching $172 million in the second quarter of 2024. The company’s Digestive Health portfolio performed particularly well, achieving nearly 9% organic growth, while the Pain Management and Recovery portfolio recorded 2% normalized organic sales growth. Avanos reaffirmed its full-year guidance for 2024, sticking to expectations for mid single-digit organic growth and adjusted gross margins between 59.5% and 60.5%. The firm also reported a positive free cash flow of $22 million for the quarter.

### Key Takeaways
– Sales from continuing operations increased to $172 million, marking a 2.6% year-over-year rise.
– The Digestive Health portfolio achieved nearly 9% organic growth, while Pain Management and Recovery saw a 2% growth.
– The company reaffirmed its full-year guidance for 2024, expecting mid single-digit organic growth and adjusted gross margins between 59.5% and 60.5%.
– Positive free cash flow of $22 million, with $15 million attributed to a tax refund.
– The 2024 free cash flow projection was adjusted to around $70 million due to higher charges and inventory levels.
– Financial objectives for 2025 include ongoing mid single-digit growth, gross margins exceeding 60%, and free cash flow around $100 million.
– The company is actively pursuing strategic M&A opportunities, particularly in Digestive Health, and is open to share buybacks.

### Company Outlook
– Avanos Medical anticipates ongoing improvement in free cash flow during the latter half of 2024.
– Long-term growth for the Pain Management business is projected at mid single-digit growth.
– The Game Ready product line is expected to maintain high single-digit to double-digit growth.
– The NeoMed segment within Digestive Health is forecasted to continue delivering high single-digit growth.

### Potential Concerns
– Some products in the NKT area have been discontinued, which may affect the overall portfolio.

### Positive Highlights
– Strong performance in the Digestive Health portfolio, alongside steady growth in Pain Management and Recovery.
– Positive developments in the rental program and sales organization.
– Record sales of COOLIEF generators, indicating long-term growth potential.

### Misses
– The company has not yet announced a new share buyback program.

### Q&A Highlights
– CEO Joe Woody highlighted the benefits of international operations and product adoption.
– Changes to the rental program and sales structure are yielding positive outcomes.
– COOLIEF is recovering from prior supply chain issues, with the RF business showing mid single-digit growth.

Avanos Medical remains focused on its transformation priorities, which include optimizing its organization, enhancing its product portfolio, managing costs effectively, and improving capital allocation. The company’s strong M&A pipeline, particularly in Digestive Health, and its interest in opportunistic capital deployment strategies suggest a proactive approach to growth and shareholder value. Despite the discontinuation of some products, Avanos Medical appears well-positioned for future growth, supported by its strategic initiatives and strong product performance.

In summary, Avanos Medical’s recent sales growth reflects resilience and offers a promising outlook for the future, bolstered by ongoing transformation efforts and solid foundational strategies.