Avanos Medical Navigates Tariffs After Solid 2025

Avanos Medical, Inc. ((AVNS)) has held its Q4 earnings call. Read on for the main highlights of the call.

Avanos Medical’s latest earnings call struck a cautiously upbeat tone, highlighting solid revenue outperformance, expanding profitability in core segments, and healthy cash generation, even as new tariffs and softness in a few product lines threaten near‑term margins. Management framed 2026 as a transition year, but emphasized that portfolio reshaping and cost actions should restore margin momentum in the back half of the year and beyond.

Full-Year Revenue Beat

Avanos reported 2025 net sales of $701 million, topping the range it had revised after the third quarter and setting a constructive base for 2026 performance. The beat reflects stronger execution across key franchises and suggests the company is successfully repositioning its portfolio toward higher‑growth, higher‑margin categories.

Adjusted Earnings Performance

Adjusted diluted EPS reached $0.94 for the full year, with $0.29 delivered in the fourth quarter, underscoring improving profitability as the year progressed. Adjusted EBITDA was $87 million for 2025 and $28 million in Q4, demonstrating operating leverage even as the firm absorbed divestiture impacts and early tariff headwinds.

Strong Specialty Nutrition Systems Growth

Specialty Nutrition Systems was a standout, growing more than 8% organically in 2025 and reinforcing its role as Avanos’s primary growth engine. Short‑term enteral feeding posted double‑digit global organic gains, while long‑term feeding rose high single digits and neonatal solutions exceeded 6% growth, highlighting broad‑based demand.

Improved Pain Management & Recovery Profitability

Pain Management & Recovery delivered an operating margin of 4% for the year, a 270‑basis‑point improvement over 2024, driven by better top‑line execution and disciplined cost control. The segment’s profit recovery shows early success in turning around what had been a lagging business, even as individual product lines remain mixed.

Radiofrequency Ablation Outperformance

The radiofrequency ablation franchise posted double‑digit organic growth for the full year, powered by continued adoption of its generators and an expanding installed base. Product platforms such as ESENTEC and TRIDENT helped extend penetration and support recurring revenue, positioning RFA as a core contributor to the company’s growth profile.

Portfolio Actions and M&A Integration

Strategic portfolio moves featured prominently, including the sale of the hyaluronic acid business and the exit from the GAME READY rental model, both aimed at sharpening focus and profitability. The Nexus Medical acquisition was cited as integrating very well, adding roughly $5 million of 2025 revenue and poised to grow at a double‑digit clip in 2026.

Cash Generation and Balance Sheet Strength

Avanos generated $21 million of free cash flow in the quarter and $43 million for the full year, supporting the narrative of improving cash discipline. With $90 million in cash, $100 million of debt, and leverage sustainably under 1x, management stressed the balance sheet’s flexibility to navigate tariffs while still funding targeted investments.

Tariff Mitigation and Operational Shifts

Facing a sizable tariff headwind, Avanos outlined an aggressive mitigation plan encompassing cost containment, pricing actions, and temporary relief efforts. Central to this strategy is the exit from China syringe manufacturing by June and the shift of production to Mexico and Southeast Asia, which is expected to gradually ease cost pressure.

2026 Guidance Supports Continued Growth

Management guided 2026 net sales to $700–$720 million and adjusted EPS to $0.90–$1.10, implying roughly mid‑single‑digit organic growth despite tariff drag. SNS is expected to grow mid‑ to high‑single digits and PM&R low‑ to mid‑single digits, with Corporate & Other revenue nearly negligible as portfolio pruning nears completion.

Material Tariff Headwind

The company expects about $30 million of tariff P&L costs in 2026, roughly $12 million higher than 2025 and predominantly tied to China‑sourced products, pressuring gross margins particularly in the first half. While mitigation steps should offset part of this burden, investors should brace for near‑term volatility as these costs flow through results.

Gross Margin and SNS Margin Pressure

Full‑year SNS operating profit was 19%, down 100 basis points from the prior year as volume‑driven margin gains were more than offset by unfavorable tariffs. Management signaled a pause in gross margin expansion for 2026, expecting improvement to resume only after the manufacturing shift away from China takes hold.

Surgical Pain Business Underperformance

Surgical Pain revenue declined year over year as anticipated reimbursement benefits from the NOPAIN Act have been slower to materialize than initially hoped. The lag undermined expectations for near‑term acceleration in this portfolio, adding to the list of factors weighing on overall margin progression in 2026.

GAME READY Rental Exit Impact

The GAME READY portfolio posted a year‑over‑year decline following Avanos’s decision to exit the U.S. rental channel and hand that business to a partner while reshaping its go‑to‑market model. Although the change reduces reported revenue, management expects the streamlined structure to enhance profitability and reduce capital intensity over time.

Hyaluronic Acid and IV Therapy Declines

Hyaluronic acid injections and IV therapy revenues fell more than 35% as Avanos completed the HA divestiture and advanced its planned exit from IV therapy, which should be finalized in early 2026. These moves will leave Corporate & Other revenue at about $1 million in 2026, essentially eliminating lower‑return lines from the portfolio.

Near-Term Margin Volatility

Despite mitigation efforts, tariffs will add incremental expense and skew 2026 earnings pressure toward the first half, creating a choppy margin profile. Management expects more visible gross margin improvement in the second half of 2026 and into 2027, once production realignment and cost savings fully flow through.

Forward-Looking Guidance and Outlook

Looking ahead, Avanos’s 2026 guidance balances a solid growth outlook with realism about tariff costs and a temporary pause in margin expansion. With capex planned at about $25 million, a roughly 29% tax rate, and leverage well below 1x, the company aims to use its financial strength and ongoing cost‑savings initiatives to restore operating margin progress as supply shifts out of China.

Avanos’s earnings call painted a picture of a company successfully reshaping its portfolio and growing its core businesses while navigating a difficult tariff environment. For investors, the story hinges on the execution of manufacturing moves and cost controls in 2026, with management betting that the short‑term pain will set the stage for stronger, more sustainable margin growth from late 2026 onward.