Avanos (AVNS) Q2 2025: RFA Growth Hits 14% as HA Divestiture Refocuses Portfolio
Avanos delivered a focused quarter, marked by strategic execution in its core segments and the divestiture of its hyaluronic acid (HA) business, realigning the company toward higher-return opportunities. Specialty Nutrition Systems and Pain Management & Recovery each posted above-market growth, with radiofrequency ablation (RFA) leading segment momentum. Tariff headwinds and cost absorption remain a challenge, but management reaffirmed full-year guidance, signaling confidence in ongoing transformation and operational discipline.
Summary
- Portfolio Realignment Accelerates: HA divestiture sharpens focus on high-growth, high-margin core segments.
- Operational Execution in RFA: Double-digit RFA growth and enhanced sales structure drive segment leadership.
- Tariff Mitigation in Spotlight: Supply chain shifts and lobbying aim to offset persistent tariff pressures.
Performance Analysis
Avanos delivered organic sales growth of 2%, with the Specialty Nutrition Systems (SNS) segment outpacing the market at 5% organic growth. SNS maintained its number one position in internal feeding, benefiting from robust demand in long-term and double-digit growth in short-term feeding portfolios. The newly launched CoreGrip tube retention system and continued expansion of the CoreTrack offering contributed to segment momentum. Neonatal solutions, under the Neomed brand, grew over 12% but are expected to moderate as adoption cycles mature.
Pain Management & Recovery saw normalized organic sales rise 3.4%, with the Radio Frequency Ablation (RFA) business delivering near 14% growth. This growth was driven by capital equipment sales and higher-margin probe pull-through, aided by a dedicated sales force and focused ASC (ambulatory surgery center) strategy. The surgical pain business lagged, reflecting slow implementation of the No Pain Act reimbursement, while Game Ready revenues softened, prompting renewed go-to-market efforts. The HA and IV infusion lines, now divested, declined over 20% due to pricing pressure, underscoring the rationale for portfolio pruning.
- Specialty Nutrition Outperforms: SNS organic growth outpaces market, led by innovation and global expansion.
- RFA Drives Segment Upside: RFA capital and consumables sales accelerate, supported by a three-tiered product approach.
- Tariff and Cost Pressures Persist: Over $8 million in Q2 tariffs and cost absorption weigh on margins, with mitigation efforts underway.
Operating profit in SNS reached nearly 18%, but was pressured by tariffs and cost absorption. The balance sheet remains strong, with $90 million in cash and leverage well below 1x. Free cash flow was negative for the quarter but is expected to reach approximately $40 million for the year, including tariff impacts.
Executive Commentary
"Building off our first quarter results, we delivered a strong second quarter anchored by continued healthy performance of our life-sustaining specialty nutrition system segment, along with continued progress in our opioid-sparing pain management and recovery segment. The demand for our product remains robust and I'm pleased with the foundation laid out for our three-year transformation efforts."
Dave Pasitti, Chief Executive Officer
"Our specialty nutrition systems portfolio continues to deliver above market results, growing 5% organically versus prior year, reaffirming our number one position in long-term, short-term, and neonatal internal feeding. Demand for our long-term internal feeding products remains strong and our underlying growth continues to beat market levels."
Jason Pickett, Interim Chief Financial Officer
Strategic Positioning
1. Portfolio Simplification and Focus
The divestiture of the HA business marks a decisive move to concentrate resources on core segments—Specialty Nutrition Systems and Pain Management & Recovery. Management highlighted that HA’s declining profitability due to price pressure justified the exit, and the move is expected to be neutral to the bottom line as strategic segments offset lost revenue.
2. Leadership in RFA and ASC Channels
Avanos is leveraging its focused RFA offering and dedicated ASC sales strategy to deepen its market position. The three-tiered RFA product line, including AscentTech and Trident, enables higher procedure volumes and recurring consumable sales, positioning Avanos as a “go-to” RFA partner for clinicians.
3. Innovation and Commercial Effectiveness
Recent launches like CoreGrip and expanded CoreTrack offerings signal a commitment to innovation and commercial agility. Management is pursuing capital-efficient go-to-market models and strategic partnerships to enhance reach and optimize selling costs.
4. Tariff Mitigation and Supply Chain Resilience
Tariff exposure remains a structural challenge, with $15 million in incremental costs expected for 2025. Avanos is accelerating supply chain investments to exit China-sourced Neomed products by 2026, leveraging exemptions, and working with industry groups to lobby for relief.
5. Cost Discipline and Transformation Roadmap
Ongoing transformation initiatives target operating model improvements and further cost reductions. The company’s strong balance sheet and low leverage provide flexibility to pursue acquisitions and invest in supply chain resilience, supporting long-term margin expansion.
Key Considerations
This quarter underscores Avanos’ pivot toward higher-return, defensible business lines, while navigating macro and regulatory headwinds.
Key Considerations:
- HA Exit Neutral to Margins: Management expects minimal impact on profitability as HA volume loss is offset by stronger core segment performance.
- RFA Growth Sustainability: Dedicated RFA focus and three-tiered offering drive customer loyalty and recurring revenue potential.
- Tariff Volatility Remains Material: Ongoing cost pressures from tariffs require execution on mitigation and supply chain relocation.
- Transformation Execution Critical: Delivering on cost optimization and commercial effectiveness will be key to hitting multi-year targets.
Risks
Tariff risk remains elevated, with $15 million in incremental costs and potential for further volatility if trade policy shifts. HA divestiture removes a low-margin business, but puts more weight on core segments to deliver consistent growth. Reimbursement delays, especially in surgical pain, could hinder near-term recovery, while supply chain transitions may disrupt product availability if not managed carefully.
Forward Outlook
For Q3 2025, Avanos guided to:
- Continued mid single-digit organic revenue growth in SNS
- Ongoing market share gains in RFA
For full-year 2025, management reaffirmed guidance:
- Revenue of $665 million to $685 million (inclusive of HA divestiture)
- Adjusted EPS of $0.75 to $0.95
Management highlighted several factors that support guidance:
- Resilient demand in core segments
- Improved currency environment
- Active cost management and supply chain initiatives
Takeaways
Avanos’ Q2 marked a step-change in portfolio focus and operational discipline.
- Core Segment Strength: SNS and RFA performance underpin full-year confidence, even as HA is divested.
- Execution on Transformation: Cost controls, innovation, and targeted M&A remain central to the multi-year plan.
- Watch Tariff and Supply Chain Moves: Success in mitigating tariff impacts and exiting China sourcing will be critical to margin stabilization and future growth.
Conclusion
Avanos exits Q2 with a streamlined portfolio and clear focus on high-growth, high-margin segments. While tariff headwinds and reimbursement lags pose ongoing challenges, disciplined execution and innovation position the company for sustained value creation.
Industry Read-Through
Avanos’ HA divestiture and focus on core segments signal an industry-wide trend toward portfolio simplification and margin discipline. The RFA growth story highlights the value of specialization and recurring consumable sales in medtech. Tariff pressures and supply chain realignment remain sector-wide issues, with successful mitigation strategies likely to separate winners from laggards. Peers with diversified portfolios may face similar choices as price pressure and trade policy volatility persist.